Identification And Response Of Material Misstatement Risks Of Parent Company In The Context Of Spin-off Listing

With the development of the capital market,spin-offs have gradually become a means to shrink corporate assets in China,while the regulatory authorities have also introduced relevant policies to strengthen the constraints.In the process of parent company’s spin-off of its subsidiaries or components,it may feedback certain risks in the audit process due to the transfer of interests,conflict of interests and unreasonable management arrangements between the parent company and its subsidiaries.In this paper,we use the case study method to study the audit risk of LEPU Medical in the case of its spin-off.Using the prospectus data of its proposed subsidiaries and participating companies and the financial data in LEPU Medical’s annual report and response to the inquiry letter,we assess the audit risk of LEPU Medical and propose corresponding risk response measures from the perspective of Certified Public Accountants with the specific situation of the company.This paper finds that companies have fund-raising motives and risk of whitewashing financial statements in the spin-off,and due to the unavoidable connection between the parent company and subsidiaries in the spin-off,the existence of connected transactions,capital appropriation and restructuring arrangements should be considered in the audit.CPAs should fully assess the risk of material misstatement and make appropriate countermeasures,while maintaining independence and prudence to better cope with Audit risk.