Study On Early Warning Model Of Financial Report Fraud Under Modern Risk-Oriented Audit

With the increasing complexity of the audit environment, the traditional auditing methods has gradually exposed its shortcomings in the identification of financial report fraud. The new auditing standards of China which put in effect on January 1st 2007 indicates that the auditing mode has changed to be modern risk-oriented audit from system based audit. Modern risk-oriented audit takes the material misstatement risk of the financial statements as the focus of the risk assessment, it stresses maintaining reasonable suspicion and knowing the enterprises in-depth to prevent audit risk. Therefore, constructing the early warning mode of financial report fraud not only can improve the ability of accountors in realizing the financial report fraud, but also can provide theoretical reference in excluding the high-risk audit project and directional guidelines in the following audit procedures after accepting the audit commission.Under summering the theory and the present research situation at home and broad systemly, this paper analyzed the status of the financial reporting fraud, the means of fraud and fraud causes with normal analysis method, and then pointed out the necessity in establishing the early warning mechanisms of financial report fraud. Second, this paper selected representative listed companies as the early warning model of financial reporting fraud's sample with empirical analysis method. It also selected 20 indicators from many aspects of companies as the early warning mode of financial report fraud's warning indicators which contained the ability of debt, profitability, operating cash, asset management capability, funds realisable ability, ownership structure, the association with related parties and whether there is any special treatment. Through notable analysising and principal component extracting, this paper identified five main financial components and three non-financial indicators as the final warning indicators. With the method of Logistic regression, this paper set up a early warning model of financial report fraud with only financial indicators and a early warning model of financial report fraud with comprehensive indicators separately, and then compared these two modes to evaluate the warning effect. At last, this paper tested a case of the listed companies, the study showed that the introducing of not finanical indicators just like ownership structure, the association with related parties and whether there is any special treatment did contribute to the warning accuracy of financial report fraud, it is nessary to establish the early warning mechanisms of financial report fraud.