The Research On Audit Risk And Response Of Small And Medium-sized Accounting Firms Under Record System

The revised securities law was put into effect on March 1,2020.With the increasing number of listed companies in China and the demand for auditing,major auditing business was contracted by large-sized accounting firms.In order to stimulate the vitality of the audit industry and improve the overall quality of CPA,the new securities law changes the access mechanism of accounting firms engaged in securities audit business from the approval system to the record system.The record system has brought some small and medium-sized accounting firms the opportunity to engage in securities auditing business.By record relevant information with Ministry of Finance and China Securities Regulatory Commission,small and medium-sized accounting firms can develop their own audit business by undertaking securities auditing,as as to achieve the purpose of “promoting fair competition and reflecting market selection” of the new securities law.However,small and medium-sized firms embrace new opportunities,but also face their own limitations and the balance of risks of the audit business of listed companies.Does the record system “lower” the threshold for engaging in securities business,and will it lead to the frequent occurrence of small and medium-sized firms colluding with listed companies to issue fake audit reports? Therefore,in order to ensure that the implementation results of the new securities law are consistent with the original intention,it is necessary to analyze how to make the record system play a more effective role based on the development situation,environment,opportunities and risks of small and medium-sized firms and listed companies.The example firm selected in this paper is Shenzhen Tangtang accounting firm.In order to help the delisted Xinyi avoid delisting,Shenzhen Tangtang accounting firm signed a “drawer agreement” with the company,issued an audit report containing omissions of fake records,and finally suffered a heavy penalty from the CSRC.Through case analysis,this paper solves the following problems:(1)What are the reasons behind the small and medium-sized firms taking risks to issue fake audit reports?(2)What responses should small and medium-sized firms take to deal with such audit risks?(3)How to effectively supervise small and medium-sized firms under the record system?At present,many scholars have done more studies on accounting firms’ audit risk or audit quality control,but there are fewer studies on the causes,response and government supervision of small and medium-sized firms’ audit risk under the new securities law record system.This paper analyses the audit risks existing in small and medium-sized firms under the record system and the motivation behind the risk,as well as put forward specific suggestions on how to control such audit risks both for the firms and the regulatory authorities.In addition,Tangtang is a novel and representative example,the analysis of this firm can provide reference significance for how to maintain the original intention of the record system,truly promote fair competition and enhance the vitality of the development of the CPA industry.This paper’s research methods are literature research and case analysis.Trough the analysis of domestic and foreign literature on audit risk research and record system of small and medium-sized firms,sort out and summarize relevant conclusions to provide a theoretical basis;By analyzing the case of Tangtang and combing with the theoretical basis,this paper analyzes the audit risks of small and medium-sized firms under the record system and put forward suggestions.This paper use the basic analysis framework of audit risk to analyze and sort out the audit risk of the whole security market and the audit risk of the Tangtang case under the record system.On the one hand,the misstatement risk of the whole security market is analyzed from the aspects of listed companies’ violations,operating conditions and hiring new small and medium-sized firms;the inspection risk is analyzed from the firms’ scale,CPA team,and professional experience.On the other hand,the misstatement risk of the case is analyzed from delisted Xinyi’s operation status,main business,profitability,ownership structure,irregularities,and change of hiring firms;the inspection risk is analyzed from Tangtang’s audit team personnel,audit income,internal management,and development strategy.At the same time,this paper apply the basic framework of audit risk management,respectively from the perspective of small and medium-sized firms and regulatory departments to make suggestions on how to effectively reduce and supervise such audit risks.