The Research On Governance-Oriented Model Of Finacal Statement Audit In Revealing Management Fraud

Financal fraud has been a great problem in word wide. No matter Enron corp. and WorldCom Inc. overseas, or Haina of Zhejiang and Zhongjie cop. at home, all the cases illustrated that existing audit models are weak at revealing management frauds. The reason why CPAs hardly exposed management frauds is that auditing standards have set up an ineffective model in unveiling frauds. Under the modern company system, the higher agent relationship problems are, the deeper influence on audit opinion has, and the more probability of audit failures is. However, the tradition audit models don't pay much attention on it. So, it's a high time to use a new model to meet the need of new time.Governance-oriented audit model uses the idea of governance to guide the modem audit goal set, bases on the analysis of the whole external and internal governance system in great depth, and then sets auditing risks and audit procedures. But most scholars only apply it on internal audit, neglecting its function on external audit, especially on revealing management fraud through external audit. This paper is on the standpoint of CPA, analyse governance situations of listed companies who have already been exposed management frauds, and then come up with procedure and methods of governance-oriented audit model in favor of bring management frauds to light. This has practical significances. On the one hand, it helps to improve the efficiency and effectiveness of work, using a model to help CPAs identify and judge the pobability of management fraud, and thus provide a reference of promoting the CPAs' occupational level. On the other hand, it is beneficial to control management fraud, and improve the quality of the financial report.The main method of this paper is normative analysis, combined with empirical research and case analysis. It is composed of six chapters:Chapter one is introduction. This chapter discusses the background and significance of the research, defines some relative definations, and introduces the main content and the structure of the research.Chapter two is review of other scholars'research. It summarizes documents about the relationship between corporation governance and financal statement, introduces predecessors'dependency analysis about management mechanism and management fraud, sums up the responsibility of public accountants to reveal frauds, and then concludes existing ways to identify fruads.Chapter three is about the idea of governance-oriented audit model in finacal statement audit. Pointed out that the CPAs have responsibility to reveal frauds, and analysis the reason why traditional audit models like system-based audit and risk-oriented audit of the audit are invalidate in controling frauds, and then lead to the content of governance-oriented audit.Chapter four focuses on the empirical research of governance variables——constructing a management fraud discriminating model. This chapter bases on corpration governance situation, structrures a management fraud discriminating model which uses some governance indices. Varibles of the modle are:the development of nonstate economy, the development of product marke, the product competitive power, the first five shareholder's percentage, the first five shareholder's percentage, H2-5 index, H2-10 index, the number of dirctors, reciprocal of dirctors, natural logarithm of dirctors, natural logarithm of supervisors and average share of supervisors. According to this model, auditors can estimate the probability of accuring management fraud, judge the company's governance situation and realize the major audit field.Chapter five is a case anlysis of Topsun. According to governance anlysis, the chapter shows governance-oriented audit model is a good tool to unveil management fraud. Chapter fix is conclution, which is summarizing the whole paper and pointing out a research direction.The innovations of this paper lie in bringing the governance-oriented audit model in finacal statement audit, putting forward a model to calculate the probability of management fraud. Thus, governance-oriented audit and disclosing management fraud are combined with.