Research On Identification,Assessment And Response Of Material Misstatement Risks In Linglang Corporation

With the increasingly fierce market competition,the economic situation became increasingly grim and financial fraud cases emerged one after another,which brought new challenges to auditors.So a new audit mode named modern risk-oriented audit came into being.In 2006,China issued new audit standards,which defined audit risks as the product of material misstatement risks and inspection risks,thus introducing the concept of material misstatement risks.Compared with the traditional audit mode,the new audit mode does not blindly determine material misstatement risks as a high level,but emphasizes the use of identification and evaluation procedures to determine the field and level of material misstatement risks,and on this basis to carry out further audit work.Although the modern risk-oriented audit method has been introduced into China,it is not mature in its application.The author finds that quite a few auditors still pay more attention to the substantive procedure but ignore the risk assessment procedure and there are problems such as subjective judgment primarily and lack of systematic process in practice.Therefore,the application of the identification and evaluation procedure of material misstatement risks in practice becomes the focus of our research.By promoting the effective allocation of resources,audit can improve social welfare.Only by improving the ability of auditors to identify and evaluate material misstatement risks,can the purpose of controlling audit risk be achieved,thus ensuring this virtuous cycle.Based on the case study,this paper elaborates on the identification,assessment and response of material misstatement risks of the case company,so as to further summarize the experience and provide reference for the better development of modern risk-oriented audit work.This paper takes Linglang Corporation for an example.The corporation is mainly engaged in sales of various types of bearings and machine tools,which have a wide range of application.However,its main business has been suffering from weak profitability in recent years.The net profit after deducting non-recurring gains and losses attributable to shareholders of listed companies has been suffering losses for five consecutive years,which usually means that there are risks in the corporation's operation,so it provides a relatively representative case for the study and analysis of this paper.This paper,in accordance with the thinking of identification,evaluation and response of material misstatement risks in modern risk-oriented audit,aims to reveal the possible material misstatement risks of Linglang Corporation through case analysis,and propose corresponding countermeasures from three aspects including audit team,audit evidence and audit quality from the standpoint of auditors.This paper consists of four parts,the first part briefly introduces the research background and significance,the research methods and so on,and expounds related content of material misstatement risks from theory and previous literature.The second part starts with a simple introduction of Linglang Corporation,and then describes the corporation's current signs of material misstatement risks.The third part is to identify material misstatement risks of Linglang Corporation from fundamental analysis and financial statement analysis,and conduct a qualitative assessment.The fourth part is to put forward the corresponding countermeasures of identified material misstatement risks above from the perspective of auditors.