Analysis On The Failure Of Lixin Accounting Firm In Auditing Of Great Wisdom

Proprietorship and right of management are separated in modern enterprises,and owners operate and manage the company indirectly through the management layer.In order to ensure the normal operation of the daily operation and maintain the sustaining and healthy development of enterprises,the owners need to understand the true state of business enterprises to make reasonable decision,but because of the different objectives between management layers and owners,there will be management fraud behavior.The accounting information is very important for investors,and the polished financial statements will mislead the investors and be detrimental to the healthy development of capital market.Meanwhile,because of the asymmetry information between the management layer and owner,the owner cannot get the real financial information of the enterprise.In order to improve the situation and prevent the owners from getting wrong information,ensuring the effective and healthy operation of capital market economy,certified public accountants audit rises,and as an industry to prevent management fraud and strengthen authenticity of industry financial data,it received a great deal of attention.In last few years,however,with the rapid development of economy,increasing pressure of market competition,competition on performance is particularly severe,and therefore,fraud motivation increases greatly,financial fraud appeared repeatedly.However,the CPA audit did not play its role,and cases of audit failure continues.In December 2001,the world's top five Enron Corp fell to the ground,and Arthur Andersen,was ruined by Enron Corp's fraud.Later,after another burst of WorldCom,Xerox,global Telecommunications and other world famous listed company's financial fraud scandal,the overall economic losses in Wall Street suffered a serious setback,heavily defeated the investor confidence.At the same time,the failures of these companies had also brought many accounting firms facing legal proceedings.Coincidentally,China's financial fraud problem is quite serious.The companies that had financial fraud successively were Qiongminyuan Hongguang,Zheng Baiwen,Yinguangxia and so on.A succession of financial fraud and audit failure cases worried the government and the public about the quality of accounting information of public companies,and the so-called “economic police” CPAs were questioned unprecedentedly,which greatly damaged the capital market in our country and the survival and development of accounting profession is subjected to negative influence.In order to solve the above problems,it is very important to study the causes and preventive measures of the audit failure.This paper combines theoretical research and case analysis with a case study of the audit failure of Shanghai Great Wisdom by Lixin accounting firm,which is discussed from five parts.First of all,based on the research background and significance of the audit failure,this paper summarizes the related research done by scholars both at local and overseas,and briefly introduces the ideas and methods of this study.The second part is an overview of the theory of audit failure.The circumscription of audit failure,the causes of audit failure,consequences of audit failures of audit failure are introduced,and puts forward the information asymmetric theory,principal-agent theory and audit conflict theory.The third part is the failure case of Lixin Accounting firm for the Great Wisdom of audit failure.After a simple introduction of Lixin accounting firm and Great Wisdom,there is detailed introduction to the financial fraud behavior,audit failure and the responses of Lixin,and clarifies the specific consequences of the audit failure.The fourth part discussed the causes of the audit failure from three aspects,the legislative audit environment,Lixin Accounting firm and audit personnel,the Great Wisdom.The concluded causes concerning Lixin were that risk assessment was not in place,CPA lacked prudence and skepticism,execution of the quality control was not qualified;the causes of Great wisdom company were mainly financial fraud,the company's internal control weaknesses and drawbacks of corporate governance;the causes of audit environment were mainly accounting firm competition and industry regulatory problems.The last part is the conclusions and revelation from the audit failure case.The first conclusion reveals that the main reason is the CPA's own reason for audit failure;secondly,the accounting firm audit quality control project failure is the secondary reason of audit failure;third,the problem of auditing practice environment is the other reasons of audit failure.The specific revelation is that the accounting firm should strengthen risk management and audit quality control;CPAs should keep being prudent and skeptical in the whole process of audit;internal control and governance structure of the company should be optimized;improve audit environment to ensure the effectiveness of industry regulation.