On The Controlling Mechanisms Of Civil Auditing Risk

Scholars both at home and abroad have studied on the connotation of civil auditing risks, among which the most authoritative one is defined as the possibility of unsuitable auditing opinions given by the Certified Public Accountants (CPA). Since the 1990s, China's civil auditing has been facing more and more law suits, which has drawn extensive attention of all sides concerned. Due to the weak senses of risks, the low professional skills and the lack of competitiveness, China's civil auditing will face harder pressure and more challenge. Therefore, it's necessary and urgent to strengthen the study of the controlling mechanism of civil auditing risks.This research program analyzes the nature and the causes of civil auditing risks, and further explores the reasonable and feasible controlling mechanism of the risks. It consists of the following four chapters:Chapter One deals with the connotation and characteristics of civil auditing risks. The nature of civil auditing risks carries three aspects: 1), the risks of CPA's inability to detect the big mistakes; 2), auditing risks in a narrow sense, which refers to the risks of CPA's giving improper opinions, and 3), risks in a broad sense, which means the possibility of auditing entity suffering of losses. Generally speaking, civil auditing risks consist of program risks (technical) and specific risks(non-technical).They two are interrelated and interactive, and composes the total risks of civil auditing. Besides, civil auditing risks have such important features as objectivity, generality, potentiality, probability and controllability. Chapter Two analyses the causes and the legal consequences of civil auditing total risks. In general , the causes of the risks include internal factors, external factors and auditing methods. The civil auditing profession bears legal obligations mainly due to two reasons: one is on the clients, including auditing errors, frauds, violation of law and clients' bad management; the other is on the CPAs, including the breaking off of engagements, fault and frauds. For the categories of the legal obligations of civil auditing risks , there are administrative obligations, civil obligations and criminal obligations. And it is generally believed that CPAs might bear administrative and civil obligations due to their violations and fault, but they might bear civil and criminal obligations due to their deceptive acts. In addition, in this chapter the author also compares the legal obligations of the US CPAs with those of Chinese CPAs.Chapter Three probes into the controlling mechanism of civil auditing project(technical)risks. Based on the analysis of the elements of the risks of the auditing items, the author proposes the measuring modes, the key controlling fields and the counter-measures to the auditing items. The basic elements of the civil auditing risks include inherent risk, controlling risk and detecting risk. And the key to the control of the risks lies in the reasonable balance between the total auditing levels and the auditing evidence costs, while the important fields of the risk control are in the course of contract signing, auditor appointing, evidence collecting, significant principle adopting, auditing working-paper's rechecking and auditing reporting. Besides, the controlling counter-measures include: 1)strictly in conformity with the Principles of Chinese Independent Auditing; 2)the establishment of sound quality control system of accountant offices; 3)signing agreement only with the upright clients; 4)thorough understanding the nature of the clients' business; 5)dealing with the relationship between the significance and the risks in auditing correctly; 6)maintaining cautious professional attitude; 7)strengthening the theoretical study of auditing risks and founding risk fund; and 8)employing lawyers who are familiar with the legal obligations of CPAs. Chapter Four mainly explores the controlling mechanism of the professional (developing)risks of civil auditing. In the author's opinion, the influential factors of pr...