Empirical Analysis About The Influence Of Material Misstatement Risk Of Financial Statements On Audit Pricing

In2006, the ministry of finance issued the “auditing standard for China certifiedpublic accountants”, which comprehensively introduces the methods of the modernrisk-oriented audit and formally implemented in January1,2007. This standardenables the new audit risk model that reflects the requirements of the modernrisk-oriented audit, that is: audit risk=risk of material misstatement×detection risk.Thus, the concept of the risk of material misstatement was introduced into thetheoretical system of audit in our country. In2010, the CICPA revised the standard inorder to solve the new problems arising from the practice in our country and achievethe continued convergence with the international audit standards. The revision paymore attention to the risk-oriented audit concept on the basis of the standard issued in2006, especially reflect the audit way of thinking which put the material misstatementin financial statements as a starting point and a key point. The risk of materialmisstatement play a more and more important position and role in audit risk and auditpractices.From the new audit risk model, it presents a inverse proportion relationshipbetween the material misstatement risk and the detection risk at an acceptable level ofrisk for a given situation. What’s more, detection risk depends on the auditor’s abilityand independence. So audit risk mainly depends on the risk of the materialmisstatement without considering the auditor’s characteristics. In order to reduceaudit risk to an acceptable risk level and better identify and evaluate risk of materialmisstatement, registered accountants must invest more resources and time to reasonbale design and implement audit procedures. After the new audit standardissued in2006, we have no idea whether Chinese certified public accountants willfollow the new risk-oriented audit model and carry out the audit work with the risk ofmaterial misstatement as the core. The article will check out it from the perspective ofdegree of audit fees under risk of material misstatement. According to audit pricingtheory, more investment audit resources, increased audit procedure and the high riskpremiums which corresponding with the high material misstatement risk will lead toincrease audit fee. If it makes the material misstatement risk as the guidance in theentire process, the factors have important effects on material misstatement risk willgain more audit care and audit resources. Meanwhile, the higher the certified publicaccountants raise the risk premium, the more the audit fee will increase.This article selects A-share listed companies from the stock markets of Shanghaiand Shenzhen during2007to2011as samples, the audit fee as the dependent variable.On the basic of the fraud triangle theory, considering the three respects--pressure,opportunity and self rationalization, we select the asset-liability ratio, return on totalassets, the proportion of independent directors, ownership concentration, violation ornot and such variables as the proxy variables of the influence factors of materialmisstatement risk; the company size, the “big four” or not as control variables. Wecan test the financial statements of material misstatement risk’s influence to audit feeunder the modern risk-oriented audit mode, which using multivariate regressionanalysis from two aspects: overall results and annual trends. Finally, it comes to aconclusion: financial statements of material misstatement risk has a significantinfluence on audit fees, which means the greater the risk of material misstatement, thehigher the audit fees. Assect-liability ratio, return on total assets, the proportion ofstate-owned shares are negatively related to the audit fees significantly, and accountsreceivable to total assets ratio, violation or not, company size, the “big four” or notare positively related to the audit fees significantly, and inventory to total assets ratio, ownership concentration and audit fees are more and more relevant with the auditfees year by year. The conclusion reflects the efficiency and quality of the currentaudit market of our country in a certain extent. Meanwhile, to a certain extent, itreflects the certified public accountant audit in accordance with the modernrisk-oriented audit when they are in the audit practice.