Study On The Identification,Assessment And Response Material Misstatement Risks Of Enterprises Under Performance Commitment

At present,m&a transactions based on the diversified needs of companies have been widely used in China’s capital market,and as a mechanism to balance information asymmetry between the two parties,performance commitment is often regarded as a key link in M&A transactions.However,in the process of actual execution,the commitment does not always effectively play its original intention of protecting the purchaser,it will cause the acquired enterprise to make performance fraud under the pressure of the performance commitment,thereby the financial position of the purchaser is at great risk,also make the public accounting firm during the annual audit work to face the situation even more complicated,increases the risks related to the performance commitments in the m&a to the work of the certified public accountant,and even causes the accounting firm issued an inappropriate audit opinion.This article systematically analyzes the specific material misstatement risks to the audit of performance commitment matters in M&A transactions in the context of the requirements of the standard for CPAs to understand six aspects of the audited entity,and concludes that performance commitment matters create specific material misstatement risk to the audit at the overall financial statement level and in related account balances and transaction levels.Among them,the risk at the statement level is mainly related to internal control risk and financial fraud risk,while the risk at the assertions level is mainly related to operating income,accounts receivable,goodwill and other statement items.CPAs should perform targeted and focused work to address the specific risks of material misstatement identified and assessed when performing audit work on companies under performance commitments.This paper adopts a case study approach to apply the aforementioned theory to the case of Ruihua CPA firm’s audit of Aerospace Communications Holdings Group Co.,Ltd.,and analyzes the identification,assessment and response to the material misstatement risks closely related to performance commitment matters in the case with a view to making the main ideas of this paper more practical and applicable.By studying and discussing the identification,assessment and response of material misstatement risks under performance commitment matters in mergers and acquisitions,we suggest areas that CPAs should focus on when auditing companies with performance commitment-related matters,so as to improve the quality of CPAs’ audit work and protect the good economic order of the capital market.