Research On Audit Risk Alert Systems

As audit risk problem become more and more prominent, public certified accountants are in great need of a set of approaches to control audit risks. This paper introduces the fuzzy judgment in fuzzy mathematics and analytic hierarchy process to study and analyze audit risk alert systems. The main ideas on the research are the following. First, it combines the previous audit risk models with the new models according to the international audit standards. Second, it establishes the structure and index systems on audit risk alert (including the basic and modified indices). Finally, it draws up the process of audit risk alert and analyzes the process with real cases. The research is expected to help public certified accountants and their firms conduct more scientific evaluations on audit risk so that they can make effective alert to reduce the risk. It will improve audit quality and efficiency and help developing audit risk theories and improve the nation's audit practice.There are three parts in this paper. The first part summarizes audit risk alert systems starting from the meaning of the audit risk. (1) It defines the audit risk in the audit risk alert systems as narrow sense audit risk, that is, the financial report does not correctly expose the financial situation of the audited company. But the auditors think they have done the job correctly. (2) It analyzes the characteristics, types and original causes of audit risks. It also elaborate the audit risk models as "Audit Risk = Serious Wrong Prediction x Inspection Risk = Intrinsic Risk x Controlling Risk x Inspection Risk. (3) It analyzes the goals, functions, current research situation and its potential significance.The second part draws up the audit risk alert system. (1) It divides the structure of the audit risk alert system into three levels, namely the decision-making level, intermediate management level and consecutive level. (2) It divides audit risk alert indices into basic indices and modified indices. It decomposes the indices level by level and forms a index system with multi-causes and multi-indices. (3) It combines analytic hierarchy process and the fuzzy judgment for fuzzy matters in fuzzy mathematics and introduces the combination into the evaluation of audit risk index, thus quantifying the audit risk index. (4) Set the audit risk alert into five levels.The third part sets up the operating program for audit risk alert systems. The program consists of outwork period and inspection period. It also uses audit cases to analyze and demonstrate the process of audit risk evaluation and alert.