A Research On The Audit Risks Of Equity Pledges In Tianshan Biological Company

In recent years,equity pledge financing has been widely used among listed companies in China due to its convenience and unique advantages.In March 2022,there were 2,507 pledged participating enterprises and a total market value of RMB3.84 trillion for A-share listed companies,accounting for 54.32% and 4.78%of the number of enterprises and total market value of A-share listed companies in China respectively.Although the regulatory authorities have issued a series of regulations to regulate equity pledging transactions,it has happened from time to time that A-share listed companies have been forced to close their positions due to the share price being close to the closing price after equity pledging,and the risk of equity pledging has also received much attention.What are the risks associated with equity pledging transactions and how do they impact on audit risk? What measures should firms and accountants take to mitigate equity pledge audit risk?In previous studies,research on the motivation of equity pledges and the impact of equity pledges on company value and business operations has become more and more complete,while research on the impact of equity pledge transaction risks on audit risks is scarce and mostly from the perspective of empirical analysis,with no specific case studies.Since 2014,Tianshan Biologicals has engaged in seven consecutive years of equity pledge transactions with a high pledge ratio,during which Tianshan Biologicals’ operational quality deteriorated and a non-standard audit opinion was issued for three consecutive years.Based on this,this thesis takes A-share listed livestock enterprise Tianshan Biological as a case study.Using a case study and literature research method,this thesis provides an in-depth analysis of the specific case based on the existing research on equity pledge and audit risk.Based on principal-agent theory,preferential financing theory,combined with theories related to surplus management,this thesis identifies the transmission mechanism of equity pledge risk affecting audit risk and proposes auditor responses to material misstatement risk and inspection risk respectively from the perspective of a modern risk-based audit model.This thesis finds that: firstly,equity pledge transactions increase Tianshan Bio’s share price volatility and operational risk including credit risk,market risk and moral hazard;secondly,equity pledge risk induces surplus management behaviour and increases its own financial risk through transmission;thirdly,equity pledge risk eventually increases Tianshan Bio’s overall audit risk through transmission of surplus management behaviour and financial risk;fourthly,Fourth,accounting firms can respond to the equity pledge audit risk through risk control prior to business engagement,risk control at the execution stage of audit procedures and increase in audit fees.