Research On The Audit Risk Of M&A Goodwill Under Different Valuation Methods

In recent years,there has been an increasing number of companies using M&A transactions to integrate resources and expand their scale in China’s capital market,and the high premiums often generated by M&A activities have accumulated a large amount of goodwill.However,after the completion of M&A,the expected synergistic effect generated by M&A does not match the actual economic benefits brought.The negative impact of this phenomenon affects not only the company’s own operations,but also many investors.High premium M&A is the key object of audit,and the huge amount of goodwill generated brings more audit hazards,while there are fewer audit risk prevention and countermeasures for different valuation methods.In this dissertation,we have selected the identification and response to audit risk of goodwill of Company R,which appears to be valued by the income approach In recent years,there has been an increasing number of companies using M&A transactions to integrate resources and expand their scale in China’s capital market,and the high premiums generated by M&A activities have accumulated a large amount of goodwill.However,after the completion of M&A,the expected synergistic effect generated by M&A does not match the actual economic benefits.The negative impact of this phenomenon affects not only the company’s own operations,but also many investors.High premium M&A is the key object of audit,the huge amount of goodwill brings more audit hazards,while there are fewer audit risk prevention and counter measures for different valuation methods.In this dissertation,we have selected the identification and response to audit risk of goodwill of Company R,which appears to be valued by the income approach,and Company T,which is valued by the market approach,as the object of case study,expecting to provide audit workers in dealing with the audit work of such complex clients to identify We hope to provide some assistance to auditors in identifying and responding to material misstatement risks when dealing with such complex clients.In this dissertation,firstly,by sorting out the relevant studies of domestic and foreign scholars on audit risk influencing factors,goodwill and goodwill impairment,the audit risk of goodwill brought by goodwill measurement under different valuation methods is supplemented;secondly,by combining principal-agent theory,information asymmetry theory,and synergy theory,the following analytical ideas are constructed: the operational risk and financial risk brought by goodwill measurement under different valuation methods to enterprises that affects the behavior of corporate management and decisions regarding future financial report disclosure,which in turn brings certain risks to goodwill auditing;again,the sample data of A-share listed companies with successful mergers and acquisitions in 2017 from 2017 to 2021 are obtained from the Guotaian database,and the operational and financial risks during the sample period are analyzed by combining the characteristics of corporate life cycle,and these risks are induced in goodwill impact at the time of audit.Finally,taking Company R valued by the income approach and Company T valued by the market approach as examples,the two sides of the M&A,the M&A process and the goodwill situation are used as the case background to analyze the audit risks arising from different valuation methods from two perspectives of material misstatement risk and inspection risk,respectively.Through the compilation and analysis of data and cases,the following conclusions are drawn: Firstly,enterprises in the growth stage may use the market approach valuation more often,which is characterized by high operational risk and low financial risk.In contrast,enterprises in the mature stage are more likely to use the income approach valuation,which is characterized by low operational risk and high financial risk.Secondly,the case analysis reveals the respective risk points of the income approach and the market approach,and the audit risks brought by high premiums and high goodwill based on bad motives are longstanding and throughout the whole process of M&A,raising the height and increasing the difficulty of the goodwill audit.Thirdly,in view of the above risk points,the countermeasures and suggestions are put forward to deal with the goodwill audit risk of listed companies in our country;accounting firms should focus on reviewing the relevant parameters of enterprise valuation and analyzing the rationality of the evaluation report;examine the disclosure of goodwill information and make suggestions to improve the disclosure system;pay attention to the core competitiveness of the subject company and analyse the accuracy of expected revenue;pay attention to the special surplus motives of management and remind to optimise the organisational structure of the company;and improve the goodwill-related professional competence of auditors and maintain professional ethics and independence.It is expected to provide references for CPAs to identify and respond to risks when auditing similar companies in the future,so as to improve the quality of audits.