Research On Audit Failure Of Accounting Firms

Audit is an assurance service aiming to improve the credibility of companies' financial information and to reduce financial risks. Occurrence of audit failure is often r elated to management fraud, independence of certified public accountants and whether necessary audit procedures are implemented during the audit work. Audit failure is the biggest challenge for CPAs, which requires CPAs or the signed certified public accou ntants to undertake the audit responsibility. Audit failure will cause adverse effects on accounting firms, certified public accountants themselves, the audited companies' business, and even social economy.The Z CPAs and certified public accountants failed to identify problems within the audit object, W company. This Paper analyzed the reasons led to audit failure. Finally, from the point of view of the management of Z accounting firm, the strategy of reducing audit failure is put forward, in order to reduce the audit failure caused by the lack of management of accounting firms. The methods of literature research, descriptive statistics analysis and case analysis were used in the study.First, this paper introduces the background and significance of the stu dy of audit failure, summarizes and combs the domestic and foreign research results over audit failure, elaborates the concept of audit failure and its relationship with audit risk and analyzed consequences of audit failure. Secondly, the statistics on the penalty cases of the China Securities Regulatory Commission from 2001 to 2015 are presented. Also, this Paper analyzes the characteristics of the accounting firm with the punishment, while it combines the practicing quality inspection notice(a total of 11) released by the Chinese Institute of certified public accountants from 2011 to 2015. It is noted that audit failure is a relatively common phenomenon. Further, according to Z CPAs description over audit failure of W company cases, this Paper lists W company's facts and means of fraud, points out Z CPAs irresponsibility during the audit work and figures out the reasons led to audit failure. Finally, from the point of view of the Z CPAs, measures should be taken to strengthen its organizational management system and business management capabilities, so that audit failure could be reduced or even avoided as much as possible. Consequently, audit quality would be improved, which would further stimulate sound development of capital market, registered accountants and audited companies. Also, this study is expected to benefit the practice of accounting firms and certified public accountants preventing audit failure.Main innovations of this Paper comprise:1?Summarizing cases with punishment from the China Securities Regulatory Commission from 2011 to 2015 and the practicing quality inspection notices publicized by the Chinese Institute of Certified Public Accountants from 2011 to 2015 with these statistical results are professionally analyzed. The rules and characteristics are identified from different angles; 2 ?Existing research on reasons led to audit failure mainly focused on CPAs' s operating environment and audit methodology, ignoring the CPAs' s internal management deficiencies attributed to audit failure. Diffe rent from the existing research, this Paper studies the audit failure from a new perspective, i.e. the internal organization management and business management of the CPAs.