| With the development of the capital market,investors are increasingly looking for real and reliable accounting information in a timely manner to make correct investment decisions to gain more revenue.The improvement of the credibility of accounting information depends on the audit of financial statements performed by certified public accountants.Therefore,in this case,investors’ demand for the certified public accountant industry is increasing.However,in recent years,the frequent occurrence of audit failures has adversely affected the normal operation of the capital market,and has also caused capital market participants to question the audit industry.Therefore,it is an urgent problem for accounting firms to improve audit quality,effectively prevent audit failures,and restore the confidence of capital market participants in the audit industry of certified public accountants.Since 2016,Lixin Public Accounting Firm has consistently ranked first in domestic accounting firms in China.Although it is the first domestic accounting firm,in recent years,Lixin was punished by the Securities Regulatory Commission for failing to perform due diligence in the audit process.This paper is supported by the process view of audit failure and principal-agent theory,and summarizes the literature on the causes and preventive measures of audit failure,through case study method and literature research method,analyzes three audit failure cases of Lixin Public Accounting Firm from 2017 to 2018,and delves into the common causes behind the failure of Lixin Public Accounting Firm.Kanghua Agriculture,Wuhan Sinopharm,and Chaohua Technology all received administrative penalties from 2017 to 2018 due to financial fraud.Lixin Public Accounting Firm and certified public accountants who provided audit services received administrative penalties from the Securities and Futures Commission because they failed to find the inflated bank deposits and accounts receivables and sales income of Kanghua Agriculture,failed to find the inflated operating income of Wuhan Sinopharm,did not identify the related party relationships,and failed to find the inflated other business income of Chaohua Technology.Finally,through analysis,it is pointed out that the reasons for failure of Lixin can be summarized into three levels,namely,the level of certified public accountants,the level of accounting firm,and the level of industry supervision.At the level of CPAs,the analysis starts from three aspects,including the background of CPAs,industry auditing experience and the maintenance of professional skepticism in practice,and concludes that the professional competence of CPA is insufficient.At the level of accounting firm,combined with the audit quality review system of Lixin,the author analyzes the staffing arrangements and audit quality review control of Lixin,and concludes that Lixin Institute’s audit quality control is not strict.At the industry supervision level,the author analyzes the penalties for audit failures and the industry supervision methods,and concludes that the current supervision and punishment of the audit industry is insufficient.Finally,in view of the common reasons for audit failure,this paper puts forward the recommendations of Lixin to prevent audit failures.The professional competence of the relevant certified public accountants needs to be improved.The accounting firm should reasonably arrange the personnel of the audit project and strictly perform audit quality review.The supervisory authority should be clearly defined,and appropriately increase the scope and number of work quality inspections on the basis that the punishment has been greatly enhanced.It is hoped that the research content of this article will provide reference to the prevention of audit failures of Lixin,and provide reference for the improvement of audit quality of CPAs and accounting firms in the same industry and the improvement of the external regulatory environment. |
