Research On The Audit Risk Of The Acquirer Under Performance Commitment

As an important way for enterprises to achieve their own development and growth through extended investment,mergers and acquisitions play an important role in integrating resources,promoting industrial transformation and upgrading,enhancing self-competitiveness,and achieving high-quality economic development.In the boom of enterprise mergers and acquisitions,performance commitment has become an important part of it: on the one hand,performance commitment can reduce information asymmetry,which is conducive to promoting reasonable valuation pricing,reducing transaction costs,improving M&A efficiency,and achieving fair transactions,on the other hand,it can reduce the risk of acquirers acquiring non-performing assets and protect the interests of small and medium-sized investors.However,the performance commitment does not achieve the above effect in actual application,and the acquired party is likely to make performance commitments higher than the company’s own profitability because it is too optimistic or for the purpose of obtaining high consideration,and when the commitment cannot be achieved,financial fraud will be carried out in order to avoid high compensation;Due to the inadequate management of the subsidiary,the acquirer does not discover the financial fraud of the subsidiary,or out of weighing the company’s goodwill,stock price,etc.,and usually does not take the initiative to disclose the fact of the subsidiary’s fraud.Therefore,for audit projects with performance commitments,the audited units have a strong incentive for fraud,and their audit difficulty is higher than that of ordinary annual report audits,how to accurately identify and assess audit risks,design audit procedures in a targeted manner,and complete audit business with high quality and efficiency has become the focus of CPAs.This paper analyzes the audit risks caused by performance commitments as a source of risk through the typical case of aerospace communications’ acquisition of smart Shanghai signing a three-year term performance commitment.Firstly,this paper summarizes the research results on performance commitment,audit risk,and audit risk under performance commitment at home and abroad,and introduces the relevant core concepts and theoretical foundations.Then,the basic situation of the merger and acquisition parties,the merger process,the content and completion of performance commitments,the means of financial fraud and the audit results were elaborated.Then,on the basis of the foregoing,the formation mechanism of audit risks under performance commitments is analyzed from a macro perspective,and the formation path of audit risks in three stages: before,during and after the signing of performance commitments,as well as the risk of major misstatement and inspection at different stages are analyzed in detail according to the characteristics of the stage of performance commitments.The analysis found that the audit risks before the signing of the performance commitment mainly included the target company selection risk and valuation risk;During the performance commitment period,there are mainly risks of financial fraud by the acquired party to complete the performance,the risk that the acquirer does not manage the integration of subsidiaries in place,internal control risks,etc.,and there is mainly the risk of goodwill impairment after the performance commitment expires.Finally,this paper proposes targeted countermeasures,hoping to help CPAs effectively identify and control audit risks in audit business involving performance commitments.