Research On The Relationship Between Clients’ Internal Control Defects And Accounting Firms，Risk Management

In recent years, domestic and foreign financial scandal after another, such as EnronEvent, Yinguangxia, Qiongminyuan, Lam shares, etc., most of which are related to poorinternal control. So to strengthen internal controls and to pay attention to responsibilitiesof accounting firms is particularly important. When Shenyang Warren Accounting firmwhich audited Lam shares company bears joint and several liability owing to fraud case,which is the first case that accounting firms are subject to civil damages for auditingfailure. As a result, accounting firms start to pay for not fulfilling their duties. Riskmanagement for accounting firms has increasingly become a hot topic in theory andpractice fields.Through reviewing the relationship between the internal control defects and riskmanagement in domestic and foreign studies, we can find that the auditing firms use thestrategy portfolio to manage their risks, and that among the strategies there is a peckingorder. First, to check the relations between internal control defects of companies andaudit fees, and the type of opinion, and accounting firms’ releasing engagement,respectively. The results show that the strategy portfolio of risk management is feasiblein a separate basis to manage the risks. Second, when studying these strategies in thesame time, we can find that among these strategies of accounting firms’ riskmanagement, there is a pecking order. Multiple regression analysis further confirms thatwith the control risk of the listed companies increasing, auditors and accounting firmsmay adjust audit fees, or tag feibiaoyijian, or release engagement in this order to react.Accordingly, CPAs and accounting firms manage customers’ control risks through anordered array of strategies. In this paper, taking the whole audit fees, feibiaoyijian andlifted employment as CPA and accounting firms’ strategy selection portfolio of riskmanagement, is the innovation. However, the limitations of the sample researched, isdeficiency of this paper.