For some companies, in the process of operation, we should pay attention to abide by relevant legal systems and policies, and avoid some risks according to the operating conditions. For company audits, there are generally certain risks. Let’s find what are the audit risks and how to deal with company audits? 

What are the audit risks?

The audit risk model is: audit risk = inherent risk × control risk × Check the risk. It can be seen that audit risk is composed of inherent risk, control risk, and inspection service risk.

Inherent risk refers to the possibility of material misstatement in a certain determination in the accounting statements without considering the relevant internal control policies or procedures of the auditee. It exists independently of audit and is a risk that certified public accountants cannot change their actual level.

Control risk refers to the possibility that the internal control of the auditee fails to prevent or find any misstatement or omission in its accounting statements in time. Like inherent risk, auditors can only evaluate its level and cannot affect or reduce its size.

Inspection risk refers to the possibility that the certified public accountant fails to find a material misstatement or omission in the audited entity’s accounting statements through the predetermined audit degree. Inspection risk is the only audit risk element that can be controlled and managed by certified public accountants.

Does equity transfer need audit

The equity transfer of state-owned assets or collective assets needs to be audited. If it is an individual company, there is no need for audit, and the price negotiated by both parties shall be implemented. However, if the equity transfer price of the company is too low, the tax authorities will intervene in the review.

​Matters needing attention in auditing bankruptcy liquidation

1. Examine the financial revenue and expenditure of the bankrupt enterprise six months before the date of bankruptcy declaration, and see whether there are illegal acts such as concealment, private division, free transfer of assets, abnormal price reduction, etc. through the increase or decrease of physical assets and the treatment of creditor’s rights and debts.

2. Check the carry forward of accounting subjects and transfer them from industry accounting subjects to bankruptcy liquidation accounting subjects to see whether they are consistent with the Interim Provisions of the Ministry of Finance on the accounting treatment of bankrupt enterprises and whether the amount is correct.

3. Whether the accounting of receivables recovered during the liquidation period is correct, whether there is a basis for the write-off of bad debts, whether there is a court ruling or approval of the Ministry of finance.

4. Whether there are necessary procedures and approvals for the disposal of inventory damage and inventory loss.

5. Whether the scrapping, inventory loss, and loss of fixed assets are approved.

6. Whether the accounting of asset appreciation (impairment) is correct.

7. Whether the accounting basis of mortgaged assets, welfare facilities assets, borrowed assets, and retrieved assets are strong and correct.

8. Whether there is any difference between the time limit and quantity of bankruptcy claim declaration and the book, and the basis for liquidation adjustment is insufficient; Whether those who fail to declare within the time limit have been dealt with according to law.

9. The first order is whether the accounting of bankruptcy debts is legal.

10. Whether the accounting of liquidation profit and loss is correct.

The above is about the relevant introduction of audit risks. For companies and enterprises, if there is audit risk, they should understand the relevant systems and policies, and pay more attention to avoid some improper means in operation, which will affect the company’s operation. If they don’t understand it, it is recommended to consult the lawyer of legal network.