Research On Audit Independence Risk

The development of capital market needs all kinds of systematic arrangements. Obviously, independent audit is a important link of them whose obligation is to step into a conflict of interest between capital seekers & providers, balance financial information asymmetry between two sides, cut down the transaction costs & heighten the effectiveness of capital market and finally realize the most effective distribution of resources. During the process achieve above purposes, audit independence is significant, not only it affects actual of perceived audit quality, but also influences auditing market demand & value location. After the Security Act of 1933 & the Security Exchange Act of 1934, all kinds of acts & regulations concerned audit independence began taking shape. Many organizations such as SEC, AICPA, ISB and ASB are making great efforts to set up regulations about audit independence and the series activities reached the summit after Enron's failure. Sabanes-Oxley Act of 2002 is a epoch-making lawful literature, which establishes the bases for the future lawful construction. At Dec 26th 1996, with the permission of Chinese financial Department, Chinese CPA Association issued CPA's basic Code of professional ethics and the literature was revised late to apply to the developing situation.From the simple discussion above, we all know that the problems about audit independence are becoming focus of the public. On the basis of practical problems, this paper puts great emphasis to discuss the independence risk-the derivative of audit independence, whose purpose is to offer theory foundation for accounting firms, CPAs, regulations and researchers. According to the traditional analysis method, this paper lays particular emphasis on the following issues.1. The analysis on Enron's audit failure. We all know that the main auditor of Enron is Anderson accounting firm and they fell in love with each other for more than 16 years. From 1997, Enron took all kinds means to add non-existed profit and conceal deficit. Under such a condition, Anderson accounting firm appeared innocent. In 2001, because of the influence of macroscopic factors, Enron and its subsidiary corporations failed in their business and their illegal activities are known to the public. Anderson's audit failure is judged by court later. To my opinion, the absence of audit independence is the fundamental factor creating audit failure and we can conclude the following factors playing important role such as financial dependence, non-audit services, and relationship between people. So the research about audit independence and3independence risk is urgent & inevitable.2. Literature Review & Analysis on the audit independence & independence risk. As far as the independence definition is concerned, this paper adopted the definition in the literature (Exposure Draft: A conceptual framework for auditor independence) issued by ISB at Nov 2000, whose purpose is to keep unanimous with the following definition of independence risk. As for the independence classification, I am inclined to agree with theory suggested by Higins whose opinion is to classify independence into practical independence & appearance independence. Besides, the author analyses many a factors, which will affect independence risk standard such as threats to audit independence, safeguards to auditor independence, significance of threats and safeguards etc.3. The construction & analysis of independence risk. It is one of the important & difficult points in my dissertation. It is of great importance because it is functioned as the basis and premise of the independence risk governance mentioned in the proceeding paragraph. The difficulty lies in the two-level fuzzy synthetic evaluation when evaluating the independence risk mathematically, the matching problem need considering with various influencing factors involved. It's hard physically and financially for the author to do the research at such a scale. For convenience, the author directly applies a...