Risk-based audit

Author: Hu Chunyuan
Publisher:
Publish Date: April 1, 2001
Features: In a highly competitive market economy, the commercial risks faced by the auditing profession have been increasing significantly. A paradoxical phenomenon is that historical experience shows that certified public accountants (CPAs) have indeed played an important role in market economies, yet the gap between the role of auditing and the public's expectations has been widening, and the number of lawsuits against auditors has also been rising. Faced with these phenomena, the auditing academia and profession are compelled to ask such questions: Is auditing itself a high-risk profession? Can audit risk be considered within audit procedures? Can risk levels be reasonably assessed, and an acceptable level of risk be determined to ensure the efficiency and effectiveness of audit work input and output?
Author Dr. Hu Chunyuan has long been concerned with and reflected on the theoretical and practical issues of audit risk. Since 1997, he has worked as a certified public accountant at Shenzhen Dahua Certified Public Accountants' Firm, accumulating valuable experience in risk audit practice. He has published the book "Research on Audit Risk," which can be considered a companion to this one. Building on a systematic exploration and discussion of the theory of risk-based auditing, this book focuses on "how to apply audit risk specifically in audit practice," aiming to develop audit procedures centered on risk assessment to guide the audit practice of certified public accountants, thereby reducing audit risk to a socially acceptable level. The book is divided into twelve chapters to explain the relevant issues of risk-based auditing.
Chapter 1 examines the historical essence of auditing through an historical review of auditing, analyzes the contingency theory, information theory, and insurance theory, and combines the social environment in which auditing operates to explain its essence from a structural perspective, thereby deriving the concept of audit risk. Building on this foundation, the chapter further analyzes the three stages of audit model development and the background of the emergence and evolution of risk-based auditing, seeking the social needs that underpin risk-based auditing, and finally introduces the steps and methods of risk-based auditing.
Chapter 2 systematically discusses audit objectives and audit responsibilities.
Chapter 3 reviews various audit risk concepts, integrates them from a systematic perspective, and decomposes audit risk into inherent risk, control risk, and detection risk. It also analyzes the elements of audit risk and the audit risk model. The chapter further elaborates on the risk analysis matrix, the significance and identification methods of inherent risk, and their integration with the audit process.
Chapter 4 describes the elements of internal control.
Chapter 5 introduces the assessment of control risk.
Chapters 6 and 7 cover the application of sampling techniques in control testing and substantive testing.
Chapters 8, 9, and 10 discuss the substantive testing of the revenue cycle, expenditure cycle, and investment and financing cycle, as well as the procedures and methods for auditing significant transactions and account balances.
Chapter 11 summarizes the work after the audit is completed.
Chapter 12 primarily discusses audit reports.