| With the development of China’s capital market,the government has higher requirements for innovation and transformation of the regulatory system of the capital market.The report to the 20 th National Congress of CPC has improved the regulatory scope and system,indicating that government agencies will further strengthen the regulation of financial markets and higher requirements for innovation in financial market regulation.Since 2014,when the exchanges publicly disclosed the inquiry letter and reply letter on its official website,the inquiry letter has become an important way to supervise listed companies in China.The auditor and the exchange are the key parts to maintain the effective operation of the capital market.The inquiry letter plays an increasingly important role in the process of controlling audit risk.Based on this,this paper mainly studies how exchange inquiry letters warn audit risks and how auditors use inquiry letters to prevent audit risks.Firstly,this paper reviews and summarizes relevant research on the inquiry letter,audit risk,and the impact of inquiry letters on audit risk prevention.It believes that the inquiry letter can warn audit risk and auditors will adjust risk assessment level higher after receiving inquiry letters.Secondly,based on information asymmetry theory,signal transmission theory,and risk-oriented audit theory,this paper analyzes the early warning mechanism of audit risk caused by inquiry letters,summarizes the ideas of auditors using exchange inquiry letters to prevent audit risk,and builds up the theoretical analysis framework of this paper.Then,based on the theoretical framework,this paper takes Yatai and ZZTT auditing New Power Technology as an example.This paper sorts out the contents of inquiry letters and reply letters issued by Shenzhen Stock Exchange to the New Power Technology during 2017-2022,and analyzes influences of inquiry letters on audit risk prevention from three aspects: material misstatement risk financial statement level and assertion level,and inspection risk.It also summarizes methods to prevent audit risks by using inquiry letters according to different risks.Finally,this paper puts forward corresponding suggestions from three aspects: the audit institution,the queried enterprise,and the inquiry letter system.By using methods such as case study,archival data and literature research,this paper finally draws the following conclusions:(1)Inquiry letters can prompt the queried enterprises to disclose more reliable information to the public;(2)The inquiry letter warns the potential risk of material misstatement through the inquiry content and the number of inquiries.At the same time,the auditor will adjust audit procedures to control the inspection risk and the total audit risk.(3)Accounting firms can use the information of inquiry and reply letters to assess audit risks,adjust audit plans,and improve audit quality.This paper mainly has the following three contributions:(1)This paper enriches researches on the impact of inquiry letters on audit risk prevention,clarifies the early warning mechanism of inquiry letters on audit risks,and puts forward the ideas that auditors can prevent audit risk by using inquiry letters;(2)This paper enriches study methods and ideas of related researches by using case study method and archival data method;(3)This paper puts forward suggestions from three aspects: accounting firm,inquiring enterprise and inquiry letter system,which has certain practical guiding value. |
