Audit Risk Evaluation of the Medical CRO Industry: A Method Combining Entropy Weight-TOPSIS and Grey Relational Degree

Guihong Zhang; Jingxia Yu

doi:10.63944/qsk.JFEMR

Authors

Guihong Zhang School of Accounting and Auditing, Guangxi University of Finance and Economics, Nanning, China Author
Jingxia Yu School of Accounting and Auditing, Guangxi University of Finance and Economics, Nanning, China Author

DOI:

https://doi.org/10.63944/qsk.JFEMR

Keywords:

Entropy Weight-TOPSIS Method; Grey Relational Analysis Method; Material Misstatement Risk; Financial Risks of Company

Abstract

Under the modern risk-oriented audit, a reasonable evaluation of material misstatement risk is crucial for certified public accountants to determine the level of materiality and implement further substantive procedures. This paper proposes a material misstatement risk assessment model based on the combined use of entropy weight-TOPSIS and grey relational analysis methods and evaluates the material misstatement risk in China's Medical CRO Industry by quantitative means. Taking the medical CRO industry as an example, this paper selects some case companies in the industry for horizontal comparison, and at the same time conducts a multi-year data comparison on the enterprise with the highest audit risk among them. The results show that Bio-Sincerity Pharmaceutical is an enterprise with relatively high audit risk in the Medical CRO Industry in recent years, and the calculation results of the model are basically consistent with the actual analysis. To effectively prevent financial risks and audit risks, financial personnel should participate in business management, analysis and budgeting, and auditors should also focus on audit segments such as dynamic cash flow, debt structure, and business contracts and debt management in combination with the characteristics of the Medical CRO Industry, so as to effectively reduce the risk of audit misstatements.

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