Research On Audit Failure And Prevention Of Listed Companies

Compared with foreign markets,China’s market economy started late in its development.With the gradual expansion of the domestic capital market in recent years,the general market environment has successively become more and more complex,with negative events such as fraudulent practices and audit failures of listed companies occurring from time to time,which not only damage the interests of investors and hinder the development of the capital market,but also have a strong impact on the auditing profession;while making the relevant firms the focus of attention,it can also expose the firms concerned to sanctions from the SFC,investor claims and even withdrawal from the market.Listed companies are important participants in China’s capital market and play an important role in promoting the prosperity of the economy.For the market to develop steadily and well,listed companies must provide accurate and reliable financial information to investors,creditors and other stakeholders.Therefore,the study of audit failure of listed companies and its prevention is particularly necessary in improving information quality and market environment.Against this background,this paper,on the basis of a comprehensive review of existing literature and theoretical achievements,draws on theories such as fraud triangle,principal-agent and information asymmetry,and takes the case of the failure of Ruihua Certified Public Accountants(hereinafter referred to as "Ruihua")in auditing Shenzhen Suoling Industrial Co.(hereinafter referred to as "Suoling")as an object of study.Firstly,we introduce the basic situation of both sides of the case,explain the review of the case related to the failure of Ruihua’s audit of Soaring,and analyse its fraudulent means and penalty results;secondly,we briefly state the current background of the computer communication and other electronic equipment manufacturing industry to which Soaring belongs,and summaries the more obvious fraudulent violations in the industry,taking into account the current situation of industry development and industry violations;finally,on the basis of a comprehensive analysis of the causes and effects of the audit failure of Suoling shares,several preventive measures are proposed in the hope of providing some reference for the improvement of the quality of the audit of listed companies’ annual reports and the healthy and orderly development of the audit industry.This paper finds that the main reasons for audit failure include four aspects:(1)lack of relative independence of auditors;(2)poor control of accounting firms;(3)problems with internal control of audited units;(4)limited deterrent effect of external supervision.Nowadays,the development of the economy,technological advances and diversification of business models make the business activities carried out by enterprises more and more complex,and the means of accounting manipulation and even fraud of listed companies becoming more hidden,which makes it more difficult for accounting firms to reduce audit risks and avoid audit failures.Based on this,this paper proposes the following countermeasures:(1)enhance the professional competence of CPAs and strengthen the rectification to improve the standard of practice;(2)enhance the position of CPA firms itself,select audit engagements carefully and pay attention to the audit process;(3)strengthen the internal control of listed companies,reduce the risk of management overriding internal control and reduce the possibility of financial fraud and material misstatement;(4)improve relevant laws and regulations,increase penalties for non-compliance,increase the cost of non-compliance for listed companies and accounting firms,and use the preventive and warning effects of the law to prevent audit failures.