A Research On Risk Management Decision Of Auditing Firms

After the first time that ShenYang Hua-lun auditing firm has been adjudged to be charged with related atonement because of Lan-Tian joint stock limited corporate in China by the end of December, 2006,the Super Court has brought the rule about auditing firm to take on paying for civil tortuous conviction into effect on June,15,2007. And the prelude that an auditing firm has to pay for its not sticking to its duty has been undrawed. In the meantime, two new guideline especial fair vale accounting rule being acted, have becoming new instruments by some firms to manipulate its earning. Because the aim of fair value is at timely showing accounting relativity between accounting information and stock value, the stock price full of uncertainty and the business environments of clients all pricked up the uncertainty and risk of accounting information and enlarged the risk for auditing firm. It has been a difficult problem desiderating solved that how auditing firm can face the increasingly rising litigation risk and choose promptly the best way. No doubt, it is a larger challenge for an auditor and auditing firm that can correctly estimate all the time. On the fire, its management thoughts and strategies cannot be any changeable. Although compared with past years, in 2007 when such factors are coming into being, the quantities of qualified audit opinion by an auditing firm is suddenly rising in Shen Zhen and ShangHai stock exchange marketing, it needs future test that whether only can this strategy absolutely avoid risk.Tending equality to international accounting rules and auditing rules is an emphasis of an accounting information system reform up to the present and for a long time tomorrow in our country. And whether the countermeasure of the auditing firm in our country needs be gradually equal to the international partners is becoming its inevitably hard problem explored in a longer period of time. From 2002 to the present, the amount of clients resignated by the larger auditing firm aboard is rising year after year, and its aim is nothing but throwing out such scalding"poi"to avoid risk. It is obvious that no auditing firm can turn risk to zero by setting an unqualified audit opinion in any time for any client. Therefore, we have to instantly probe into how to make auditing firm grasp a number of the best client portfolio strategies in order to pursuit survive and develop in our material system and environments. Moreover, it has not only this importance, but also has far-reaching meaning that it is more possible to lead to tragedy of death before"dispatching troops"without lofty strategy and method for the sake of realizing auditing firm to larger and stronger of our own country .The article is just based by such reasons to discuss how our auditing firm to counter and cut the throat of risk. And the content of the article is arranged as follows:First of all,based upon the specialties of an auditing firm client's portfolio risk management, the author proves several mainly factors affecting clients portfolio risk by setting up the optimized model for an auditing firm.Then the author tests the theoretical conclusions and deeply analyzes the reasons which are not coming into existence by using Chininese listed companises'data from 1998-2003. Second, the author presents the stable optimized decision model and gives a number of theoretical analyses, and posts the relationship among litigation losses, acceptable risk level and the final client amounts, next supports corresponding empirical tests by using real data in our country.Thirdly, by employing uncertainty investment theory, and analyzing the client portfolio optimized dynamic strategy and the stochastic dynamic equilibrium, the author makes some conclusions, and then gives some empirical test by using our country's listing firm data. Forth, the author also anatomies those conclusions which don't have reality by integrating system background of our country. Lastly, based the foregoing theoretical conclusion and empirical findings, aimed at the actuality of auditing firm's client management in our country, the author presents some relevant suggestions and makes some primary conclusions, then points the deficiencies, limits and the directions for future research.Under the relative documents is very scarce around the world, the article has the following three findings:First, the author found theatrically and emperically that under the limited partnership and perfect payment mechanism, with the increasing of client quantity, the time budget dress, and the level of auditors'honesty, the client portofolio risk also was decreasing;Secondly, on the client portifolio risk managent stable strategy of an auditng firm, the author theoritically makes the following conclusions: the larger litigation loss of an auditing failure for an auditing firm is, the higher auditing costs are, and the smaller acceptable client portfolio risk is, moreover, the larger the riskier client are resigned or refused.Thirdly, the author concludes that the best decision of a larger auditing firm is a process to pick out riskier client continuously, but the most optimized decision for a smaller auditing firm is to accept the resigned client by a larger auditing firm, and the flow between these two scale auditing firms endlessly produces the dynamic equilibrium in the auditing market. After the empirical test by employing actual data from our country, the result shows that the larger auditing firm would like to resign riskier clients, and its acceptable risk boundary is smaller, but the client's quantities accepted by smaller auditing firm is no relative with auditing risk.And the first conclusion has been tested it is correctly in our country.