Research On The Relationship Between Related Party Transaction Of Listed Company And Audit Risk

With the continuous improvement of the world economy and the continuous development of the technology, the related party relationships and transactions in the enterprise have become a general phenomenon in modern market economy life in order to adapt to the fierce competition of the capital market. The related party transaction is easy to become a measure which is taken by the listed companies to adjust their profit, decorate their financial statements and seek personal interests for the controlling shareholders and other small groups, because the prices of the related party transactions can be determined through consultation by the two related parties. Currently, the complicated related party transactions are generally used by both domestic and foreign listed companies to manage earnings. In recent years, more and more listed companies and managers in China’s market take advantage of the unfair related party transactions to dress the achievement up and attract investors. What’s more some major shareholders also continue to against the interests of the small and medium-sized investors in this way. The popularity of related party relationships and transactions which are both not clearly defined and difficult to regulate will undoubtedly bring a big problem for the auditing field. Although the laws and all regulatory agencies have constantly tried to make strong and targeted regulations for related party transactions, they fail to find a proper breakthrough due to the universality, complexity, invisibility and many other realistic reasons. This leads to the difficulty of the audit work of certified public accountants which also increase their audit risk.In order to avoid the loss of accounting firm reputation and any other losses caused by the auditing failure of the related party transaction, CPAs should find a balance in the auditing of the related party transaction in the listed companies. That is to say, CPAs should find the balancing factors between the existence of the material misstatement of related party transactions in listed companies and the certified public accountants’ability to find the material misstatement, which will finally achieve the purpose of controlling the audit risk. This paper adopts both normative research method and empirical research method. Firstly, it starts with the main characteristics of the related party relationships and transactions in China’s listed companies and the status of the CPA’s audit work towards the listed companies. Secondly, it studies the factors which influent the audit work of CPA through the theoretical and empirical analysis of relationship of related party transactions and the audit risk. Finally, it puts forward some policy suggestions and measures from the angle of motivation to control of audit risk of related party transactions. The content to this paper consists of five parts:The first part is the introduction. It introduces the research background, research purpose and the domestic and foreign research achievements, then puts forward the research method, structure and innovation points and deficiencies.The second party is the general concept and theory of related party transactions with the audit risk, including:definition of related party, related party transaction confirmation, internal and external environment analysis, motivation analysis, character, the theoretical basis of profit manipulation in the use of related party transactions; history of audit risk, contents, audit risk, features of audit risk of related party transactions.The third part is the status of the listed companies’ related party transaction and the situation of their audit, including the general situation of the related party transaction; supervision and regulation of listed companies’ related party transaction in our market; the main way through which China’s listed companies could make use of related party transactions to do fraud. On the basis of these, this paper analyze the relationship between the related party transactions and the audit risk, including the influence of related party transactions on the risk of material misstatement, the influence of related party transactions on the detection risk and the influence of audit risk on related party transactions.The fourth part is the empirical analysis of the effect of the listed companies on the audit risk of related party transactions. The paper selects5166A shares non-financial companies listed on Shanghai and Shenzhen Stock Exchange from2009to2011as samples, and make the descriptive statistics and regression analysis through SPSS software. The fifth part is the conclusion and suggestions. The empirical study concludes as follows:First, when compare the listed company which has more related party transactions with the one which has less, the higher the related party transactions led the companies’ material misstatement risk is, the higher the CPA’s audit risk is. Second, as to the listed companies who have the related party transactions which may even be against the rules, with the CPA could discover them more comprehensive and disclosure them wider, the CPA could control the detective risk caused by related parties transactions as well as the audit risk. Third, this paper proposes some suggests managing the related party transactions from the perspective of the listed companies’ managers. Fourth, this paper proposes some methods to control the audit risk of listed companies caused by related party transactions from the aspects of CPA audit work.The main contributions and innovation points of this paper are as follows:This paper seizes the common problems that the listed companies take advantages of the uneasily exposed and unfair related party transactions to dress the financial statements up, starts with the influence of the related party transaction fraud on the CPA audit risk, combines the research methods of theoretical and empirical, analyze the related party transaction forms and risk types which will easily lead to business failure and the audit failure from two aspects of material misstatement risk and detective risk. At the same time, this paper deeply analyzes the relationship between the related party transaction and the audit risk from the aspect of that they affect each other. As a consequence, this paper comes into the conclusion that from what angle should the CPAs focus their work to avoid the audit risk, and on the basis of this, this paper gives enlightenments about the managers’future administration work on the related party transaction and the CPA’s future audit work on related party transaction.The deficiencies of this paper are as follows:the reality of the market disclosure of data acquisition is limited due to my limited research capabilities and my shallow experience. On one hand, I failed to remove the fair related party transactions from the large amount of related party transactions. Thus, it may lead to a mistake that some fair related party transactions also increase the audit risk when connects the related party transactions to the audit risk. On the other hand, a large number of data which are used in the empirical research come from the reports of the listed companies. Therefore, it needs to assume that all of the statements are true, complete and fair.