Strategic Analysis In Audit Risk Assessment

Modern risk-based audit advances strategic analysis as a starting point for risk assessment, because operational risks of material misstatement can find through strategic analysis. Accounting information reflects the company’s economic and business activities and results, and various economic and business activities of the enterprise affected by many factors such as the industry’s stage of the life cycle, competition, corporate strategy. Therefore, the financial statements should be audited by strategic analysis to identify significant operational risks. Since the implementation of risk-based audit in 2007, firstly the auditors should carry out risk assessment, including strategic analysis. On the one hand, strategic analysis includes analysis of the macro environment and micro environment, strategic analysis on the content. On the other hand, the method includes the PEST analysis, SWOT analysis, five forces model analysis, financial aspect to analysis. In the risk assessment, the auditor will easily fall into the financial statements of specific information if they could not use the strategic analysis properly, thus they cannot find the real problem and affect the effectiveness or efficiency of the audit. In this paper, Nan Fang Company, for example, we use strategic analysis method to study strategic analysis in audit risk assessment.This paper is divided into five chapters. The first chapter is an introduction. The second chapter is a review of modern risk-oriented audit, the main research of risk assessment methods and strategic analysis. The third chapter introduced modern risk-based auditing methods firstly, theories and methods of strategic analysis and then analyzed and summarized audit program flow based on theories and methods. In chapter IV, strategic analysis in audit risk assessment use Nan Fang Company as an example. The fifth chapter is the conclusion of this article as well as the outlook and advices.The main conclusions of this paper(1)Theoretical analysis shows that the strategic analysis is applicable in the CPA’s audit risk assessment. Modern risk-based audit advocated "strategic analysis- Analysis of business sectors- financial analysis" as the audit mainline to fully identify business risks of material misstatement. The implementation of the response procedures is to reduce audit risk to an acceptable level. Therefore, the risk assessment should make full use of these strategic analysis methods.(2)From the Nan Fang company case study, we knew that there are four levels. Firstly, Industry analysis analyzes the gap between the industries. Secondly, competitive strategy analysis analyzes the gap between the main competitors. Thirdly, the company’s strategic analysis analyzes the adequacy of the company’s strategy. Lastly, financial analysis of key indicators to analyze whether it is reasonable. Through these four levels’ analysis, the auditors can effectively identify risks of material misstatement.(3)Strategic analysis methods combined with financial analysis. Strategic analysis method is a qualitative analysis from the macro level to identify risks of material misstatement. Strategic analysis need to combine with financial analysis methods which is a quantitative analysis to reach mutual authentication purposes.This paper studies the strategic analysis of risk assessment which can guide for audit practice, and improve audit efficiency as well as the quality of audit. The study of this paper can rich the strategic analysis theory. In addition, the research will also help to reduce audit risk of the firm in this article. At the same time this article can be the regulatory authorities and industry associations’ basis to strengthen the accounting firm for training and guidance.