Research On The Audit Risk Prevention Of Implicit Related Party Transactions

Related party transactions have become a common phenomenon in contemporary economic market.Many enterprises reasonably integrate resources through related party transactions to improve the efficiency of capital utilization,and help the development of the enterprises.Related party transactions are favored by the company’s decision-makers because of their lower cost and stronger operability,this transaction method also brings benefits to the company.The recognition of related parties is the key to the determination of related party transactions.Finding a company’s related parties is often a breakthrough in discovering related party transactions.Therefore,if a related party which is essentially a related party relationship can be transformed into a formally non-related party,then the company’s related transactions would be hidden.Therefore some listed companies will “de-associate” through a third-party after the completion of the transactions.The hidden trend has increased,making it seems to have authenticity and fairness on the surface,but it lacks commercial substance.The concealment of related party transactions has increased the difficulty of audit and brought higher audit risks.This article selects Chinese pharmaceutical companies as the research object.One of the reasons is that the pharmaceutical industry requires continuous research and development to maintain competitiveness,and such research and development innovation has the characteristics of "large investment,long cycle,and high risk." Pharmaceutical companies have a strong motive for financial fraud.Another reason is that China attaches great importance to pharmaceutical industry,various regions have also continuously introduced new policies and invested capital to support the development of local pharmaceutical companies,and there must be difficulties for companies to attempt fraud with China’s focus.Therefore it is more likely to take covert counterfeiting.Most of the existing researches are theoretical studies of "implicit related party transactions".There are not many studies that combine theory with actual cases.Based on the above background,this article selects the well-known "White HorseStocks",Er-kang Pharmaceutical as the research object,and the company uses a typical implicit related party transaction method.This article is to identify the early warning signals of the company’s hidden related party transactions,in order to help future accounting firms to pay more attention to similar early warning signals in the audit process;then use the audit risk model to explore the existence of Tian-Jian Certified Public Accountants Deficiencies,and later proposes suggestions for preventing audit risks of implicit related party transactions,hoping to avoid the probability of audit failures for similar events in the future.The innovations of this article include: Firstly,most companies that engage in financial fraud are motivated by concealing huge losses or preparing to go public.Er-kang has always been a well-known "white horse stock" in the market.The motivation is different from others as a highly profitable enterprise;it is to prepare the controlling shareholder for cash reduction and research,which can provide reference for accounting firms.Secondly,previous studies lacked a single enterprise combination theory to analyze fraud identification indicators and build an early warning identification system,most of them only analyze all the risk points,and less research on the hidden early-warning signals of related party transactions,so this article has special reference significance.