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Article 1. The present Standards are hereby formulated in accordance with the "National General Auditing Standards of the People's Republic of China" for the purpose of regulating the acts of auditors for their application of the importance of auditing and assessment on audit risk, and guaranteeing the quality of auditing work. Article 2. The "importance of auditing" (hereinafter referred to the importance) mentioned in the present Standards refers to the extent of severity of the errors and omissions in the revenue income and expenditure, financial income and expenditure and relevant accounting information of the audited entity, and should such errors and omissions fail to be disclosed, they would sufficiently influence the judgments or decisions of those who use such information and the realization of the aim of auditing. Article 3. The assessment on the level of importance is a kind of professional judgment of auditors, who shall, when determining the nature, time and scope of the auditing process and assessing the auditing conclusions, use the principle of importance reasonably. The level of importance is shown in the form of fixed amount of money. Article 4. Auditors shall, when determining the level of importance, assess comprehensively the extent of severity of errors and omissions of the overall assessment and each composition thereof from two aspects including the sum of money and the nature. The accumulative total of the errors and omissions with little sum of money of the same kind may have an influence on the level of importance of the overall assessment or the relevant composition thereof, and auditors shall pay attention to it. Article 5. Auditors shall, when determining the level of importance, fully consider the purpose of auditing, the demand of those who use the information and matters they care for. Article 6. Auditors shall, when compiling plans for carrying out auditing, determine the level of importance of the auditing items so as to decide the nature, time and scope of the auditing test; and shall compare the sum of errors and omissions they have found in auditing and the sum they infer with the level of importance during the period of auditing report, so as to assess the auditing result and draw auditing conclusions. Article 7. Auditors shall judge the level of importance by using professional knowledge and experiences, and shall consider the influences of the following factors: (1) The requirements of the relevant state laws and regulations; (2) The purpose of auditing; (3) The demand of those using the information; (4) The nature and business scale of the audited entity; (5) The internal control and business risk level of the audited entity; and (6) The nature and sum of money of the revenue income and expenditure or financial income and expenditure, the correlation between the items and the trend of alteration, etc.. Article 8. The level of importance will influence the workload of auditing. The lower the level of importance is, the more the auditing evidences will be needed, and the heavier the auditing workload will be. Auditors shall keep the professional caution they should have, and determine the quantity of the auditing evidences they should collect in pursuance of the level of importance. Article 9. The audit authorities shall, in light of the reality of the environment they are in, formulate the standards for the basis and ratio for judgment of importance. Auditors shall choose in reason the basis and ratio for judgment of level of importance. Generally, the basis for judgment may adopt indexes such as total amount of budget income or expenditure, total investment, total assets, net assets, total expenditure, total business income, and net profits, etc.. The audit authorities shall prescribe the scope of ratio of importance, within which auditors may determine the specific ratio after they have made analysis and judgment on auditing items. Article 10. When assessing the auditing result, the consideration on the level of importance may be different from such consideration thereon in formulating the plans for carrying out auditing. If the former is greatly lower than the later, auditors shall reassess whether the auditing test they make is sufficient. Article 11. When assessing auditing result, auditors shall compare the sum of errors and omissions they have found and the sum they infer with the level of importance, so as to determine whether to enlarge the scope of substantive test or determine whether to reflect them in the auditing report and how to work out the audit assessment opinions. Article 12. Audit risk refers to the possibility that auditors fail to find out the major errors and omissions in the revenue income and expenditure or financial income and expenditure of the audited entity, and make improper auditing conclusions. Audit risks consist of intrinsic risk, control risk and examination risk. Article 13. Auditors shall keep the professional caution they should have, and apply reasonably the professional judgment to make assessment on audit risk, and take corresponding auditing test measures, so as to lower the audit risk to the extent that are acceptable. Article 14. The procedures for assessing audit risk shall be: (1) Determining the audit risk level that is acceptable when compiling plans for carrying out auditing; (2) Finding out and assessing the intrinsic risk level through investigation into the audited entity; (3) Assessing the control risk level through testing the internal control; and (4) Calculating examination risk level through risk model and hereby determining the scope and workload of the auditing test. Article 15. The intrinsic risk is the possibility of the occurrence of errors in the business and relevant accounting treatment of the audited entity, provided that there is no internal control. The intrinsic risk has to do with the management and environment of the audited entity, and the kinds of accounting items or business. Auditors shall consider the following factors when assessing intrinsic risk: (1) The management level of the audited entity, including the good faith and ability of the management personnel; (2) The abnormal alteration of the management personnel and accountants; (3) The kinds of business of the audited entity; (4) The adjustment and alteration of the relevant laws and regulations in relation to the audited entity; (5) The environmental factors influencing the departments or industries that the audited entity is in; (6) The range of professional judgment for accounting treatment by accountants; (7) The complexity of major transactions concerned, which need to be proved by external experts; (8) Whether there are assets easily lost or embezzled; (9) Whether it falls within the business fields in which errors occur easily; (10) The conditions of accounting treatment on the abnormity or complexity occurred during the accounting terms, especially during the period when the end of the accounting term is drawing near; and (11) The conclusions audited in the previous years, etc.. Article 16. Control risk refers to the possibility of failure to prevent or correct the errors occurred in the business or corresponding accounting treatment of the audited entity through internal control. Auditors shall, after making preliminary assessment on internal control, make preliminary assessment on control risk of various major business and accounting fields. Control risk has to do with the healthiness and effectiveness of internal control. The following factors shall be taken into consideration when assessing control risk: (1) Whether the relevant internal control has been established; (2) Whether the implementation of economic business and relevant control formalities is timely and effective; (3) Whether the economic business and each control process have been implemented by qualified personnel; (4) Whether the records on business activities are complete; (5) Whether the business handling process is independent; (6) Whether the key point control exists; (7) Whether the control target is satisfied; and (8) Whether the control system operates effectively, and whether the various controls have been brought into full play. Article 17. In case one of the following circumstances occurs, auditors shall determine the control risk as high risk: (1) The internal control of the audited entity is weak; (2) Auditors are unable to make assessment on the effectiveness of internal control; or (3) Auditors do not prepare to make consistency test. Article 18. Where, after the preliminary assessment on the relevant internal control of the audited entity has been made, the auditors believe it can prevent, find out or correct major errors and omissions, and prepare to make consistency test, they shall not assess the control risk as high level. Article 19. The lower the control risk level of the preliminary assessment is, the more the perfect and effective evidences concerning internal control are needed. Article 20. Auditors shall, before the end of on-the-spot auditing, make final assessment on control risk on the basis of substantive test conclusions and other auditing conclusions. If the assessment conclusions are higher than the control risk level of the preliminary assessment, a supplementary auditing test shall be considered to make accordingly. Article 21. The intrinsic risk and the control risk relate with each other, auditors shall make comprehensive assessment on both of them so as to take them as the basis for assessing examine risk. Article 22. The examination risk refers to the possibility that auditors fail to find out the existing errors in the audited entity through substantive test. The examine risk level relates directly to the workload of substantive test, the lower the acceptable examination risk is, the heavier the workload of substantive test shall be. Auditors shall determine the examination risk on the basis of the intrinsic risk and control risk they have assessed, and hereby determine the quantity of the substantive test. Article 23. Auditors cannot control intrinsic risk and control risk, but they may make assessment on them, and adjust the level of examination risk through designing relevant examination measures so as to lower the audit risk to the extent that is acceptable. Article 24. In case the assessment on audit risk has any alteration during the carrying out of auditing, the auditors shall reanalyze whether the audit risk is within the level determined by the preliminary auditing plan. If the audit risk exceeds the level that is acceptable, the supplementary auditing test shall be made. Article 25. The relation between the importance and audit risk is reversed, the lower the level of importance is, the higher the audit risk is. Auditors shall pay attention to this relation when determining the nature, scope and time of the substantive test, and make adjustment on the basis of the circumstances. Article 26. Auditors shall, when making auditing samples, use the level of importance they have determined and the conclusions on assessment of audit risk to calculate the quantity of the samples. Article 27. Auditors shall compile auditing journal when determining the level of importance and assessing the audit risk. Article 28. The power to interpret the present Standards shall remain with the National Audit Office. Article 29. The present Standards shall be implemented as of February 1, 2004. |
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