Audit Risk Under The Risk-based Audit Study

At the beginning of the 21^st century, Andersen company, which is one of the five largest CPA firms in the world, was in peril because of "Enron case", Zhongtianqin CPA firm in China was bankrupt for "Yinguangxia case". These reveal clearly that the profession of CPA is facing ever-growing risk of audit. The risk of audit is usually fatal once it becomes a loss for a CPA firm as subject of audit. Several years gone, the social and economic environment has greatly changed. Adapting to the change of auditing environment, the International Auditing and Assurance Standards Board (IAASB) has greatly revised the audit risk model and has accordingly adjusted the related standards. Under the background, the auditing business in China should adjust timely the auditing thought to adapt to this kind of change and the latest regulations on international auditing standards should be applied into the auditing practices to lower the audit risk. The new auditing standards of China will put in effect on January 1^st, 2007．China regulates the new auditing standards on reference of the international auditing standards. The new auditing standards regulate:audit risk = material misstatement risk×detection risk It requires CPA to assess material misstatement risk of financial statement and balances of account separately .It is essential to understand and construct correctly audit risk model for controlling and lowering efficiently audit risk. According to the cause of audit risk and relation between risk components author revise audit risk model to efficiently manage and control audit riskThe dissertation consists of four sectionsThe definition of audit risk and related concepts are summarized in the first section. Firstly, the definition and features of modern risk-oriented audit are introduced; secondly, author agree on special audit risk, that is say, audit risk is defined as the possibility that CPAs are not able to produce and announce correct audit opinion, finally, scholar discourses the relation between audit risk and audit failure.The causes of audit risk are researched in the second section Audit risk mainly comes from subject of auditing, object of auditing and environment of auditing. The causes caused by the object of audit include the fraud of management and the problem of enterprise government structure. Causes of audit risk from CPAs include CPAs' limited rationality and the opportunism inclination, CPAs' limited ability and experience, the defects of audit approaches and CPAs' professional skepticism and domain knowledge. The environmental factors that bring about audit risk comprise economic environment, law environment and the expectation gap between the public and CPAs.The model and components of audit risk are discussed in the third section. At the beginning, domestic and international scholars' thoughts on audit risk are introduced. Then, the model of audit risk in the new auditing standards of China is discussed. Author thinks that it should be revised:audit risk = (risk of fraud + error risk)×detection risk The revision of audit risk is an innovation in the dissertation. Finally, the assessment of audit risk components in the new model is researched.Some advices on how to control and lower audit risk are given in the fourth section, they include (1) further perfect enterprise government structure;(2) How do CPAs and CPAs' prevent and control audit risk; (3) Perfect and enforce the law responsibility institutions of audit risk, establish good law environment.