Research On The Causes And Consequences Of Xinghua Accounting Firm’s Audit Failure

As an external regulatory and management mechanism,the audit of an accounting firm plays a key role in the operation and management of the audited entity,focusing primarily on verifying the accuracy and reliability of financial statements.For the audited entity,a high quality audit contributes to the longevity and efficient governance of the business.High-quality audit services can have a positive impact on a firm’s reputation and thus contribute to the efficient development of an accounting firm.However,in recent years,some CPAs and accounting firms have been consistently penalised by the SFC and other regulatory authorities for failing to exercise due independence and prudence in conducting audits and issuing incorrect audit opinions,and it is intriguing to note that some of these penalised subjects have even suffered frequent and multiple penalties.Audit failures by accounting firms have seriously undermined the public’s trust in the firms and auditors,harmed the interests of the public and hindered the healthy development of the market order.Therefore,it is of great practical significance to analyse the causes and consequences of audit failures and to explore countermeasures and suggestions for audit failures of accounting firms.The article mainly adopts the literature research method and case study method,combining the relevant studies on the causes and consequences of audit failures by scholars at home and abroad,using the principal-agent theory,rational economic man hypothesis,risk-oriented audit theory and reputation mechanism theory as the theoretical basis,to analyze the multiple audit failure cases of Xinghua Firm from2016 to 2021,including " Xintai Electric" in 2016,"Sino-Australia Group" and "New Green" in 2019,"Linzhou Heavy Machinery" in 2020 and "Huanrui Pictures" in 2021."Huanrui Pictures" in 2021.By collating the above five cases,analyzing the commonalities and differences among them,analyzing the causes of audit failures of Xinghua CPA firm from three aspects: CPA,CPA firm and external regulatory environment,analyzing the consequences of multiple audit failures of Xinghua CPA firm from four perspectives: number of clients,audit fees,audit quality and firm reputation,and proposing countermeasures to prevent audit failures from occurring on this basis.The analysis is based on the number of clients,audit fees,audit quality and the firm’s reputation.According to the research in this thesis,the following conclusions were reached:(1)CPAs are not exercising due care,do not perform audit procedures properly and lack proper professional ethics when conducting audit engagements.CPAs should exercise due care,strictly comply with the provisions of audit procedures and ensure that professional ethics are maintained at all times.(2)The CPA firm suffers from a lack of independence,inadequate internal quality control and inadequate risk assessment when undertaking audit engagements.The firm needs to enhance audit independence,strengthen internal controls and assess risks carefully when undertaking engagements.(3)With regard to the external environment,there are problems of inadequate inspection and penalties and lagging penalties.The SFC and relevant authorities should enhance regulatory efficiency,increase penalties for non-compliance and shorten the penalty cycle.Through the above analysis and summary,it is hoped that the proposed countermeasures can improve the situation of frequent audit failures,create a good audit environment and promote the healthy development of the audit profession.