Study On The Choice Of Risk-based Audit In China

Real modern risk-based audit began in the 1990s. It includes business risk-based audit, management fraud audit and material misstatement risk-based audit. However, business risk-based audit and management fraud audit can't embody the substance of audit. In order to enhance the ability of the auditor to assess the risk and discover the fraud, in October, 2003, the International Audit Assurance Standard Board (IAASB) determined the new audit risk model, namely audit risk equals material misstatement risk multiplying detection risk. This event indicated material misstatement risk-based audit has come into being. Chinese Institution of Certified Public Accountant has issued this new audit risk model on February 25,2006, at the same time begins to apply the new audit risk model on January 1,2007, which helps to improve the auditors' abilities to discover the material misstatement of financial report.The research aim of this thesis is offering a choice for our auditors applying material misstatement risk-based audit model through the comparison of business risk-based audit, management fraud audit and material misstatement risk-based audit on the base of analyzing the basic theories of risk-based audit model. The research of this thesis can help to develop the audit theories.This thesis is divided into five parts to discuss material misstatement risk-based audit and its application.Chapter one is introduction, which includes background, significance, present research situation at home and abroad, the research technique and the main research content.Chapter two elaborates the basic theories of risk-based audit including the signification about risk and risk-based, the sameness and difference of the audit risk model in different audit time and the signification of risk-based audit lastly.Chapter three summarizes the advantages of material misstatement risk-based audit and points out that it's the direction of modern risk-based audit development through systematical comparison among business risk-based audit, management fraud audit and material misstatement risk-based audit. At the same time, it puts forward material misstatement risk-based audit limitation. Chapter four discusses the primary elements of the material misstatement risk-based audit including material misstatement risk evaluation, the basic auditing procedure and methods compared with other audit model.Chapter five analyzes the auditor's choice of risk-based audit model and points out that material misstatement risk-based audit will be dominant in the future. Chapter six is the conclusion and expectation.The thesis attempts to assess the material misstatement risk of the financial report quantitatively on the base of the existing risk-based audit theories. The final conclusion is that material misstatement risk-based audit is the direction of risk-based audit.