Modern Risk-based Audit Application Research

As a series of cases of fraud happened in the stock market in 1990's ,risk-oriented audit used by Big Fours widely was doubted by more and more people, and most of them ascribed the failure of the audit to the adoption of risk-oriented audit .These ideas spread quickly in the world, which brought unprecedented pressure to the auditors. So, IAASB and ASB embarked on researching and revising the risk auditing standards in order to improve the risk-oriented audit approach .At the same time, the environment of the audit changed, and the enterprise risk management was put into use in many multinational corporation. In 2006,a series of auditing standards about risk management were issued. This article is based on the recent study results inside and outside China, and focuses on risk-based auditing. This article is divided into four parts.First, Review of study inside and outside of China. There are several articles listed in this part, and they analyzed the risk-based auditing from different aspects. They also pointed out the disadvantages of the risk-based auditing.Second, Theories about the risk based auditing. The author first introduced the definition of audit risk and then explained the contents of components of audit risk, and they are control risk, inherent risk, detection risk. The risk model has been changed from"Audit risk= Control risk * Inherent risk * Detection risk"to"Audit risk = Material error risk * Detection risk". Then,the author explained the three basic theories---corporation strategic management theory, Overall Risk Management Theory, and System Theory. These theories require the auditors to use advanced auditing methods and enlarge the objects of auditing. Therefore, the risk based auditing is arisen. At the end of this part, the author expounded the emergence of risk-based auditing from the development of auditing.Third, the application of risk-based auditing. The author first introduced the process of risk-based auditing, and point out that the risk-based auditing also has three stages—planning stage, implementing...