Audit risks analysis and control of China listed company in real estate Industry – a case study

Abstract

Research Objectives and questions In this paper, the author aims to put forward suggestions for auditors to prevent and reduce audit risks by studying the areas of high audit risks existed in China listed real estate enterprises. The research questions include: What are the influencing factors for material misstatement risks; What are the main factors triggering the inherent risks; How the risks of control and detection occurred; What are the effective measures to prevent or reduce audit risks.

Research Method and Data The author applies quantitative research method in this paper. Based on the modern audit risk model, the author analyzes the audit risk by dividing the audit risk into the material misstatement risk at the financial statement level and the identification level (inherent risk and control risk), as well as the inspection risk. Based on the published data of the case company and risk-oriented audit model, this paper discusses the audit risks of listed companies in China's real estate industry and the preventive measures.

Findings of the Study This paper concludes that macro policy changes, industry development bottlenecks and material asset restructuring may increase the risk of material misstatement in the financial statement layer of real estate enterprises. China listed real estate companies` inherent risks are reflected in specific items such as revenue recognition, profit accrual, non-recurring gains and losses recognition and investment revenue recognition. The imperfection of enterprises` internal control system and the risk of collusion with the third party also increase the enterprise control risk. For inspection risks, causing factors include the independence risks of accounting firms, the professional competence risks of auditors and the risks of improper audit and execution of audit procedures.