Ruihua Certified Public Accountants’ Failure In Auditing Hunan Chinasun Pharmaceutical Machinery Co.,Ltd.

As an auditor,certified public accountants are crucial to ensuring the authenticity,compliance,and reliability of financial information of listed companies.Due to the continuous expansion of the scale of listed companies,a wide range of business types,and increasingly complex financial fraud methods,accounting firms face greater challenges in preventing audit failures.Currently,the frequent occurrence of financial fraud and audit failures by some large listed companies and accounting firms has had a negative impact on the securities market,not only infringing on the interests of investors,but also damaging the reputation of accounting firms,causing the public to lose trust in the professionalism and impartiality of the entire audit industry,posing a huge threat to the healthy development of the capital market.This article selects the case of Ruihua Certified Public Accountants’ audit failure of Hunan Chinasun Pharmaceutical Machinery Co.,Ltd.as the research object.Using the methods of literature research and case study,it follows the overall idea of "background research-theoretical overview-case introduction-analysis of reasons-summary of inspiration-making recommendations",and extracts the causes and influencing factors of audit failure on the premise of combing domestic and foreign literature,Through a detailed analysis of the process of Ruihua’s audit failure of Chinasun Pharmaceutical Machinery,this article explores the main reasons for the audit failure from the perspectives of accounting firms,certified public accountants,audited units,and external regulatory units,and finally summarizes the case inspiration and puts forward targeted suggestions to prevent audit failure from the perspective of the above four entities.The main framework of this article is divided into five parts.The first part mainly describes the research status and background,summarizes the research results of domestic and foreign scholars on the concept of audit failure,influencing factors,and avoidance strategies,and introduces the research ideas and basic framework of this article.The second part focuses on the definition,formation factors,and impact of audit failure,and constructs the theoretical foundation of this article based on principal-agent theory,information asymmetry theory,fraud risk factor theory,and modern risk-oriented audit theory.The third part first introduces the basic situation of Ruihua and Chinasun Pharmaceutical Machinery,and points out the financial fraud methods of Chinasun Pharmaceutical Machinery,mainly including illegal confirmation of sales revenue,false increase in profits,false sales receipts,false reduction of bad debt reserves,false reduction of accounts receivable and bad debt reserves for the dissolution of factoring business,and misappropriation of related party funds,false increase in construction in progress;In addition,the chairman of Chinasun Pharmaceutical Machinery Co.,Ltd.also uses its control power to occupy a large amount of non operating funds of the enterprise.Next,this article lists the specific manifestations of Ruihua’s audit failure based on accounting subjects,including four aspects: failure to maintain professional skepticism about monetary capital subjects,failure to pay attention to the prior information of notes receivable,failure to independently implement the accounts receivable letter verification procedure,and insufficient audit of new key customers in operating revenue,and clarifies the impact of this audit failure on both parties.The fourth part of the article mainly analyzes the reasons from four aspects: certified public accountants,accounting firms,audited entities,and the industry regulatory environment.The most superficial reason is that certified public accountants fail to maintain sufficient professional suspicion during the audit process,and do not strictly investigate and investigate high-risk projects;Lack of substantive audit procedures during the implementation of subsequent audit procedures,and relying solely on management rhetoric to deceive oneself in the event of abnormal circumstances;Inadequate and appropriate audit evidence was not obtained,and correspondence was used to verify that the manuscript was fake and lacked supporting evidence.The entire audit process was riddled with loopholes.At this time,although Ruihua Institute was large in scale,its quality control and review mechanism failed,unable to play a supervisory and auditing role,indirectly leading to the occurrence of audit failures.From the perspective of the audited unit,the dominance of the internal equity structure of the enterprise and the increase of concerted action by people make the internal control of the enterprise ineffective and unable to play a supervisory role;The continuous external acquisition and expansion of the enterprise make it impossible to maintain the current status of funds;External pressure and internal monopoly are undoubtedly the internal reasons for audit failure.Finally,from the perspective of the professional environment,on the one hand,the penalties imposed by regulatory agencies are insufficient,the cost of crime is low,and they cannot generate deterrence.In addition,the fierce competition in the audit market and price competition make it difficult to ensure audit quality.In the face of numerous audit failure cases,the fifth part provides some reference suggestions: Firstly,certified public accountants must always maintain a professional skepticism attitude,do their homework well before starting a project,and continuously improve their professional abilities;Secondly,accounting firms need not only to attract talents,but also to strengthen the quality of audit projects in various aspects,and implement risk control from beginning to end.In addition,listed companies need to continuously pay attention to the rationality of their equity structure,strengthen internal control,and achieve internal audit optimization.Finally,external regulators can make full use of big data to strengthen regulatory stringency,while considering increasing penalties based on financial fraud income.