Modern Risk-based Audit And Applied Research

Since the Risk-oriented audit mode comes into being, it has attractedthe attention of people in the auditing field. But this mode hasn't beenused in practice completely since its birth. Even in the application, therewere some cases of audit failures because CPAs can't catch on it or use itcompletely and correctly. As the global economy changes greatly in the 21st century, theenterprises contact more closely with the environment outside. The limitof audit approach which is internal-oriented is becoming more and moreobvious. And with a series of cases of fraud in the stock market beingrevealed it brings unprecedented pressure to auditors. All these forceauditing field to focus on risk-oriented audit approach again and continueto do research on this approach to improve it. Big Fours have cooperatedwith academe to explore modern risk-oriented audit approaches. IAASBand ASB also embark on researching and revising the risk auditingstandards in order to promote the risk-oriented audit approach to change. As international auditing academe and practicers have paid greatattention to the risk-oriented audit approach, CICPA also established aresearch subject about modern risk-oriented audit in 2004. Based on theabove background, the author tries to introduce the recent foreignproduction to make a systemic and significative research on the modernrisk-oriented audit from the aspect of CPA financial statements audit. The whole thesis is divided into four chapters. Chapter 1: The establishment of risk-oriented audit mode. It statesthe two stages of development of risk-oriented audit and then the authorgives some considerations about it. Firstly the risk-oriented audit thisthesis talks about is confined to the field of CPA audit in order todifferentiate it from the field of internal audit. The author thinks that theprocess of evolvement of auditing mode, the generation and recentdevelopment of risk-oriented audit is a self-adjusting course for audit tosatisfy the need of the society. Because of the change in the risk-orientedaudit, the author calls the developed one the modern risk-oriented auditapproach and the one before advancement the traditional risk-orientedaudit approach. As for our country, there is the concept of risk-orientedaudit but it hasn't been put into practice. So the author suggests that weintroduce some production of foreign countries and probe into itsapplication in our country with caution. Chapter 2: The theory of modern risk-oriented audit. This chapterdiscusses the signification of the risk-oriented audit first. And the authorthen explores the theoretical basis and the concept framework ofrisk-oriented audit to lay the foundation for the application of the modernrisk-oriented audit. The author points out that the risk-oriented audit usedin CPA audit distinguishes from that used in internal audit. And we shouldcomprehend it from two aspects: the first is that it is oriented by audit risknot the risk of the clients; the second is that it has to estimate the risk ofthe clients for the sake of embedding the business risk of the clients to theauditing risk assessment. The supporting theories of modern risk-orientedaudit include the scarcity and configuration theory, the risk theory, thecost and benefit theory, the strategic management theory and the fraudmotivation theory. The first three theories explain the generation of therisk-oriented audit. The strategic management theory supports the modernrisk-oriented audit to make analysis of the enterprise and the fraudmotivation theory forms the foundation of audit of the fraudulentfinancial statements. The concept framework includes audit risk,materiality, audit risk model and internal control. The improvement ofthose concepts does favour for the implementation of this approach. Chapter 3: The application of the modern risk-oriented audit. Thischapter compares the modern and the traditional risk-oriented audit, andelaborates the procedures and fundamental methods of the modernrisk-oriented audit. Finally the author takes two cases for example andanalys...