Research On The Strategy Of Auditor’s Applying Professional Judgment To Deal With The Risk Of Major Misstatement Under Bond Default

Bond market is an important part of our financial market.In the market environment of economic downturn,the "quasi-national debt attribute" of bond financing provides enterprises with easy approval process,low capital cost,leverage income and large financing scale financing channels.In order to further promote the marketization of bond market,our country broke the "rigid payment" in 2014,and "super Japanese bond" defaulting makes zero default of our bond market a history.The number of bond defaults finally reached its peak in 2020,with the default amount reaching 175.772 billion yuan,more than 130 times that of 2014.At the same time,the main scope of bond defaults also shifted from private enterprises to state-owned enterprises,and the bond default risk of high-grade state-owned enterprises began to rise significantly from 2021.Among them,some bond issuing enterprises with heavy bond burden,poor operation and management or affected by external economic environment lead to capital turnover difficulties.In order to avoid negative effects caused by bond default,they choose to create a false financing environment for enterprises by falsifying major false content,concealing important facts and other financial falsification methods.Such a situation is a test for the professional judgment of auditors.Whether auditors can take the abnormal bond issuance and bond default as signals and further judge the fact that the auditee has committed financial fraud through the complicated external environment,operating efficiency and strategic planning of the auditee.As one of the important chemical enterprises in Henan Province,Yongmei Holdings is also the capital operation platform of coal and coal chemical industry in Henan Province.Since 2017,the coal industry has been gradually declining due to the influence of policies,and Yongmei Holding has also begun to adjust its industrial structure.However,with the increase of joining the "race track",Yongmei Holding began to face the problems of high debt and low profit.In addition,it has continuously provided "blood transfusion" to its parent company Henan Nenghua,resulting in a heavy bond burden.Finally,in October 2020,the substantial bond default occurred under the condition of sufficient book funds.Subsequently,Yongmei Holding was proved to have committed financial fraud,and the audit failed due to the audit report issued by Higma Accounting Firm with standard unqualified opinion.Based on scholars’ research on bond default and material misstatement risks,this paper explores how auditors use audit professional judgment to identify,evaluate and deal with material misstatement risks by taking Yongmei Holding bond default as a signal,and proposes suggestions on how auditors can reasonably exercise professional judgment under such circumstances.This paper first introduces the bond default of Yongmei Holding and the relevant situation of Higma CPA firm.After summarizing the situation of Yongmei Holding’s concentrated bond issuance from 2016 to 2020,it selects the annual report from 2014 to 2020,prospectus,summary of government work and relevant information disclosed by the enterprise.From the level of financial statements and identification level,this paper explores the mistakes made by the auditors of Higma CPA firm in the process of identifying and coping with the risk of material misstatement of Yongmei Holdings,and finds that the auditors made professional judgment errors on the harsh industry environment,the differences in production capacity and strategic planning,the bureaucratic chaos of internal control and the unstable operating benefits of Yongmei Holdings.Auditors also did not doubt the signs of "high deposits and loans" and unusually restricted funds at Yongmei Holdings.Based on this,this paper puts forward suggestions to auditors and firms from three perspectives: the overall response strategy to the risk of material misstatement at the financial statement level,the audit procedure to identify the risk of material misstatement at the level of financial statements,and the measures to optimize the firm’s business quality under the risk of bond default,so as to prevent auditors from auditing failures in similar enterprises again.