Research On The Effect Of Fraud Risk Assessment On Audit Planning

The Ministry of Finance issued a new fraud auditing standard (No.1141) in 2006 to clarify auditor responsibilities with regard to fraud detection, that is,,the audit process is designed to provide reasonable rather than absolute assurance that the financial statement are free from material misstatements due to error or fraud .And also set forth performance standards providing guidance on how to assess fraud risk.The auditors should dealing with the risk according to the results of the risk assessment .Since the identify and detection of fraudulent financial reports is largely dependent on audit evidence decisions, and the collecting of evidence is closely related to the audit planning decision-making .The planning decision includes decide upon to the nature,extent of the procedures,and definite time budget as well as assignment of personnel and so on. This study seeks to determine whether the results of a fraud risk assessment are likely to significantly impact the nature ,extent ,and the budget hours, and timing of audit procedures performed. In addition,the study examines whether auditor experience level may play a role in explaining part of the variability in audit decision-making.Two versions of the case instrument were constructed. One version has many high risk fraud factors,while the other contains factors more suggestive of low fraud risk factors. The sample of 110 external auditors come from five big accounting firms of changsha,kunming and zhuhai .there are responded to a series of questions in 6-point Likert scale from one of two versions of a case study which based on a medical equipment manufacturer. The questionaire request the participant individuals makes the assessment of fraud risk,budget the hours of auditing inventory and related test count ,and select the possible audit procedures that may be performed in the audit of inventory and related accounts depending on the client environment. The data was summarized and analyzed using a combination of factor analysis , ANCOVA, and t-test. The results indicate that the audit evidence decisions are significantly affected by the auditor assessment of fraud risk at the planning stage and thus support the main hypothesis in the study. It appears that the presence of high fraud risk factors in a client environment may lead to the auditors's assessment of fraud risk are high,and more likely to increase the budget audit hours, and assignment of more experienced audit personnel to certain tasks as well as more emphasis on when certain procedures are performed. There was no support, however,for the hypothesis testing whether audit experience account for some of these difference.Do the new fraud auditing standard No.1141 compliance requirements merely present another added audit component which is more apt to increase the cost of the audit than impact the evidence gathering process and aids the auditors detect the management fraud more effectively and decrease the audit risk? In light of the rising incidence of management fraud, answers to the above questions are not only of interest to the Auditing Standards Board with regard to the effectiveness of their new standard , but also to the auditing profession and the public as a whole. The inclusion of this study to some extent provide the effect that the external auditors apply the new fraud auditing standard.