Evaluation And Response To The Risk Of Material Misstatement Of Related Transactions Of Listed Companies

With the rapid development of the economy and the increasing number of listed companies,the stock market is becoming more complicated accordingly.Facing the complexity of the market,the competitive pressure between enterprises is growing.In order to cope with the competitive pressure in the market,many companies will cooperate with other companies in the form of vertical merger and horizontal merger.The related party is formed by this kind of cooperation,and the transactions between these enterprises are called the related transactions.Related transactions between the parent company and the subsidiary will greatly reduce the transaction cost,improve the resource allocation ability between the enterprises and improve the efficiency of the enterprise,thereby enhancing its overall competitiveness.However,it is also possible to use the related transactions between companies as window-dressing to cover the financial statements and reduce the tax burden of the entire group.Therefore,non-compliance related transactions not only lead to economic losses of small and medium-sized shareholders,but also affect the order of the securities market and harm the capital market.Due to the complexity and concealment of affiliate transactions and the imperfection of external supervision system,the risk of auditing by accounting firms has increased.When implementing accounting for related party transactions of listed companies,accounting firms need to make corresponding risk assessments and take countermeasures for material misstatement related transactions.The Certified Public Accountants’(CPA)firm effective assessment of the risk of material misstatement of related party transactions helps control each risk point in the audit process of related transactions.When assessing the risk,the CPA should not only evaluate the internal environment of the enterprise,but also analyze the external factors such as the macro environment in which the enterprise is located.The CPA can set the corresponding audit procedures according to the evaluation results,which can effectively link the related transactions.Prevent and reduce the possibility of audit failure.Hence,it is essential to strengthen the firm’s control over affiliate transactions if try to reduce the fraudulent phenomenon of related transactions.This paper combines the relevant theories at home and abroad with the cases in real word to analyze the case of RH CPA firm auditing Chengdu Huaze Cobalt And Nickel Material Co.,Ltd.,thereby propose for the audit of related transactions.This article comprehensively analyzes the entire audit failure case through five chapters.The first chapter is the introduction,which introduces the research background and significance of the risk assessment and response of the major misstatement of related transactions.At the same time,based on the collation of the documents related to the risk of material misstatement of related transactions,the analysis logic of this paper is clarified and the research framework is built for this case.The second chapter clarified the related concepts of the risk of material misstatement of related transactions and the theoretical basis of the research case,paving the way for the following analysis of audit failure cases.The third chapter is an introduction to RH CPA firm’s audit of the risk of material misstatement of Huaze Cobalt-nickel related transactions.The first is to introduce the basic situation of Huaze Cobalt &Nickel and the specific facts of its related transactions,and the second is to introduce the basics of RH Certified Public Accountants,the situation and the related performance of its audit failure,and finally the process of RH CPA firm’s assessment and response to the risk of material misstatement of related transactions.The fourth chapter analyzes the risk assessment of the major misstatement of related transactions of RH CPA firm and the shortcomings of its response.Firstly,it puts forward corresponding deficiencies from the financial statement level assessment and the assertion level assessment,and then proposes two shortcomings according to the responds to the risk of material misstatement of related transactions.The fifth chapter is based on the previous chapters,and proposes to strengthen the risk assessment and response of major misstatement of related transactions of accounting firms.Based on the analysis of this case,the conclusion can be draw: The related transaction audit is difficult,so we need to evaluate the risk of material misstatement of related transactions more efficiently and propose corresponding countermeasures during the audit process.In the terms of risk assessment of material misstatement,accounting firms need to evaluate both financial statement level and at assertion level,not only to analyze the environment in which the audited entity is located,but also to strengthen the internal control of the accounting firm.Moreover,in the terms of dealing with major misstatement risks in related transactions,accounting firms need to strengthen the audit objectives of related transactions,the professional competence of auditors,and design and implement audit procedures pointedly.Based on the detailed analysis of the audit case of RH CPA firm,this paper focuses on the RH accounting firm’s risk assessment and related deficiencies in the related transactions.Firstly,using PEST and Porter’s five-force model to analyze the macroenvironment of Huaze cobalt &nickel and the risk of material misstatement in the industry environment.Then,combined with financial indicators,it analyzes the operational risk level of Huaze Cobalt &Nickel.This paper focuses on the shortcomings of this related transaction audit from the financial and non-financial perspectives,which helps to strengthen the accounting firm’s prevention of the risk of material misstatement of related party transactions.