Audit Risk Model Research Based On Material Misstatement Risk

CPA guidelines were revised beginning from November1,2010.The audit risk standardsemphasize the concept of material misstatement risk which was implemented in January1,2012. It emphasized the audit work should identify and assess the risks of materialmisstatement. Take risks of material misstatement as a starting point to guide the auditors auditand assess the risks of material misstatement. The work efficiency can be improved andresources can be allocated efficiently. For now, though scholars have identified and assessedthe risks of material misstatement for long time, but how to decompose material misstatementrisk factors and how to evaluate the weight of it, and make it more accurate and scientific, ithas not got in-depth research, at the same time, the accounting firms for audit riskidentification and assessment also have their own views in the audit, they were a serious lackof discipline. Based on the above reasons, to research the perfection of the audit risk model.Firstly, the listed companies were analyzed which were punished in2011-2013by CSRCand the stock exchange, and the correlation between various factors were analyzed through theidentification and assessment of risk factors. Secondly, to decompose material misstatementrisk factors based on analysis of the five risk factors, and give them specific factor index, andestablish a set of indicators, and analyze punished companys’ co-factors. Then using principalcomponent analysis to extract material misstatement risk indicators, and to choose somecomprehensive indicators from these indicators in order to reflect the original information andsimplify the problem. These indicators were divided into five risk factors, they are the externalenvironment risk, customer business risk, financial risk, accounting fraud risk, internal controlrisk. Finally, through considering the impact of these factors, to pefect audit risk model and tomake the revised audit risk model operability in the practical work on judging companys’ risks.Therefore, from analyzing material misstatement risk, audit risk model was revised, andrisk was identified and assessed from accounting fraud risk, financial risk, operational riskcustomers, external environmental risk, internal control risk, and fully understand the level ofthe risk of the company which was audited.