Research on Audit Risks in the Digital Transformation of Enterprises

Wei Wei

The College of Business Administration, Liaoning Finance and Trade College, Ganquan, Anshan, China

Keywords: Digital Transformation, Audit Risk, Audit Measures.

Abstract: With the development of the digital economy, digital transformation has become a significant trend for

enterprises. The application of technologies such as cloud computing, artificial intelligence, and blockchain

presents new audit risks for auditors in the context of enterprise digital transformation. By analyzing the audit

risks associated with this transformation, this paper states the major audit risks faced by enterprises from four

perspectives: new audit risks in digital transformation, material misstatement risks at the financial statement

level, material misstatement risks at the assertion level, and detection risk. Based on this analysis, the paper

proposes preventive measures for each type of audit risk. The research reveals that digital transformation

increases the demand for auditors' information technology audit capabilities and that IT-based auditing can

effectively address and mitigate various audit risks. However, audit independence and objectivity remain core

principles. This paper aims to provide preventive measures to reduce audit risks for enterprises, promote

comprehensive business upgrades, enable successful digital transformation, and reduce barriers to sustainable

development.

1 INTRODUCTION

With the development of technologies such as cloud

computing, artificial intelligence, blockchain, autom

ation, and the internet, digital transformation has gra

dually become particularly important for enterprises.

Björkdahl (Joakim Björkdahl, 2020) states that in th

e future, companies that fail to seize the right opport

unity to implement digital transformation will face ri

sks of declining profitability, being surpassed by com

petitors, or even being pushed out of the market. The

report from the 20th National Congress of the Com

munist Party of China emphasized supporting the de

velopment of specialized, high-tech enterprises and p

romoting deep integration of the digital economy wit

h the real economy. The State Council's executive m

eeting approved the Action Plan for the Digital Trans

formation of Manufacturing.Prior to this, in April 20

20, the U.S. Senate introduced a new version of the E

ndless Frontier Act, indicating that major world pow

ers have already incorporated digital transformation i

nto their national strategies, making it one of the pri

mary fields of future competition.

Digital transformation has become a major trend

for enterprises today.However, while this transforma

https://orcid.org/0000-0000-0000-0000

tion brings unprecedented opportunities, it also come

s with new challenges. In the field of corporate auditi

ng, digital transformation may objectively improve a

udit efficiency and quality to some extent, thus reduc

ing audit risk. However, this does not mean that audi

t risks will decrease significantly or disappear altoget

her. Therefore, during the process of digital transfor

mation, companies should take adequate measures to

prevent potential audit issues and incidents. Analyzi

ng the objectivity, potential and pervasiveness of aud

it risks is crucial for effectively controlling them and

minimizing their impact on the company's normal o

perations. This paper aims to accelerate the pace of d

igital transformation for enterprises, promote the digi

tal transformation process, enhance the quality and e

fficiency of corporate audits, conduct efficient audits,

and strengthen the prevention of major audit risks. B

y aligning with the trends of the new era, the paper s

eeks to help companies upgrade while reducing audit

risks, maintaining normal operations, and promoting

sustainable development.

Through the analysis of the new audit risks and o

ther types of audit risks brought about by digital tran

sformation, this paper discusses the audit mechanism

s and measures enterprises should adopt in the new e

368

Wei, W.

Research on Audit Risks in the Digital Transformation of Enterprises.

DOI: 10.5220/0013230900004568

In Proceedings of the 1st International Conference on E-commerce and Artiﬁcial Intelligence (ECAI 2024), pages 368-373

ISBN: 978-989-758-726-9

ra from four perspectives: new audit risks, The risk o

f misreporting at two levels of corporate finance and

detection risk. Additionally, it highlights the audit te

chniques and professional skills that auditors in the n

ew era should master.

A review of the existing literature reveals that res

earch on audit risks related to digital transformation i

n enterprises is limited. Most studies focus on chang

es in overall enterprise value, governance levels, perf

ormance and collaboration between upstream and do

wnstream enterprises, with an emphasis on audit qua

lity and audit value. However, few studies address th

e impact of digital transformation on audit risks.

2 CONCEPTS RELATED TO

DIGITAL TRANSFORMATION

AND CORPORATE AUDIT RISK

2.1 Digital Transformation

Digital transformation is a broad concept. Digitizatio

n is defined by Merriam-Webster as the process of c

onverting something into a digital form (Yang Yanxi

n & Gao Minxue, 2024). When digitization is applie

d to various aspects of an enterprise’s daily operation

s, it is referred to as enterprise digitization. Enterpris

e digital transformation refers to the integration of di

gital technologies that lead to fundamental changes, i

mpacting multiple areas such as business models, or

ganizational structure, production manufacturing, pr

oducts and services, and business processes (Zhong

Xiaolong & Li Huihui, 2024). The aim of this transfo

rmation is to improve an enterprise's flexibility, agili

ty, innovation capability and competitiveness, while

creating new value and business opportunities, ensur

ing the sustainable development of the enterprise thr

ough new operating models in the digital era.

Digital transformation is not merely an upgrade a

t the technological level; it is a comprehensive organ

izational change and a continuous process that requir

es phased advancement across various levels. It dem

ands adjustments and optimizations in the enterprise'

s mindset, organizational structure and operational m

odels. Enterprises should shift their mindset in mana

gement and operations to meet the strategic needs im

posed by their development in the new era. Optimizi

ng organizational structures by building more flexibl

e, open, and collaborative frameworks, and fostering

a workforce with digital thinking and skills, is critic

al to responding to rapidly changing market environ

ments and enabling enterprises to successfully compl

ete their digital transformation.

After digital transformation, an enterprise’s opera

ting model must be driven by customer needs, with a

focus on direct connections with customers through

technological innovations such as big data, the Intern

et of Things (IoT), and cloud computing. These tech

nologies enable enterprises to meet user demands pre

cisely by providing point-to-point services based on

data platforms supported by cloud computing. This a

pproach optimizes products and services, enhances c

ustomer experience, improves operational efficiency,

reduces costs, creates new business models and gro

wth opportunities.

2.2 Audit Risk

Audit risk, in simple terms, refers to the possibility t

hat significant misstatements or omissions exist in th

e financial statements and that the auditor fails to det

ect these errors, resulting in an inappropriate audit op

inion. This definition encompasses two main aspects

of the auditing process: one is the problem with the

financial statements themselves, and second, neglige

nce or misjudgment of the auditor during the audit.

According to the Auditing Standards Board of th

e United States, Statement No. 47 states that audit ris

k is the risk that auditors unintentionally issue an ina

ppropriate opinion on financial statements containing

significant misstatements. The Chartered Profession

al Accountants of Canada describe audit risk as the ri

sk that audit procedures fail to detect significant erro

rs. International Auditing Standard No. 25, Materiali

ty and Audit Risk, defines audit risk as the risk that t

he auditor may provide an inappropriate opinion on f

inancial statements that are materially misstated." Th

e Chinese Institute of Certified Public Accountants d

efines audit risk in Article 17 of the China Certified

Public Accountants Auditing Standards No. 1101 - O

bjectives and General Principles of Financial Statem

ent Audits (2007) as the possibility that significant m

isstatements exist in the financial statements and that

the certified public accountant issues an inappropria

te audit opinion.

There are numerous reasons for the occurrence of

audit risk, and it cannot be completely eliminated. H

owever, most audit risks can be mitigated through sc

ientific assessment and reasonable management strat

egies, enhancing audit risk prevention and improving

audit quality and efficiency. Audit risk possesses ob

jectivity, potentiality, and pervasiveness, allowing fo

r effective control.

Research on Audit Risks in the Digital Transformation of Enterprises

369

3 AUDIT RISKS IN THE

PROCESS OF ENTERPRISE

DIGITAL TRANSFORMATION

There is certain audit risks associated with the digital

transformation of enterprises, which can primarily b

e categorized as follows.

3.1 New Audit Risks Brought About by

Digital Transformation

Digital transformation not only enhances an enterpris

e's core competitive advantages and improves its cap

acity for risk-taking but also utilizes digital technolo

gies to generate a vast amount of structured and unst

ructured information, thereby providing auditors wit

h reliable accounting information and improving aud

it quality (Zhai Huayun & Li Qianru, 2022). Enterpri

ses utilize information technology to build databases

and employ the rapid filtering, sorting, and computin

g functions of these databases for data processing, si

gnificantly enhancing data processing efficiency and

the accuracy of audit work (Zhou Gang, 2023). Whi

le digital technologies facilitate auditing and increase

efficiency, they also introduce new audit risks. Thes

e risks arise from the new characteristics of technolo

gy and the changes in enterprise operational models

associated with it.

First, as enterprises deepen their reliance on infor

mation technology and automated systems, any syste

m failures or security vulnerabilities may affect the a

ccuracy of financial statements, thereby increasing a

udit risk. Events such as hacker attacks, malware, an

d internal data breaches can lead to the alteration or l

eakage of financial information, significantly compli

cating auditors' efforts to assess and verify the authe

nticity of this information.

Second, as enterprises adopt big data and advanc

ed data analytics tools, data quality and data manage

ment become significant risk points in the audit proc

ess. Since databases serve as a crucial source of audit

information, inaccurate or unreliable data can presen

t major obstacles during the audit process and signifi

cantly impact the quality of audit results. Auditors m

ay need to invest substantial time and effort to verify

the accuracy and authenticity of data. Furthermore, t

he rapid technological advancements brought about

by digital transformation may lead to auditors lackin

g the necessary technical knowledge and skills. Digit

al transformation requires auditors to not only posses

s traditional financial and accounting knowledge but

also to have a certain understanding of information t

echnology (IT) systems, data analysis, and cybersecu

rity, along with related skills. Auditors must continua

lly learn and adapt to new technologies; otherwise, th

ey may be unable to effectively identify and assess th

e resulting audit risks.

3.2 Material Misstatement Risks at the

Financial Statement Level

From the perspective of the external environment, th

e current market share is nearly saturated, significant

ly increasing competitive pressure on enterprises. Ad

ditionally, the economic climate in recent years has b

een less than favorable, with rising operating costs a

nd diminishing profitability. At the same time, the de

mands of emerging markets resulting from digital tra

nsformation cannot be overlooked, as the pressure on

cash flow during this transformation process is subst

antial. Digital transformation increases management

and labor costs, which may lead to less noticeable im

provements in performance in the short term (Qi Yud

ong & Cai Chengwei, 2020). For enterprises, sustain

able development becomes an unavoidable challeng

Investment and financing are among the primary

sources of capital for enterprises; thus, companies th

at report average or even negative operating results

may resort to practices such as producing fraudulent

financial statements or manipulating annual reports t

o present a more favorable image. This behavior can

significantly increase audit risk. Internally, if the digi

tal transformation does not meet the enterprise's expe

ctations, fails to open new markets, and does not gen

erate new economic growth points, the losses incurre

d during the transformation process will not be recov

erable. In a highly competitive market, if the enterpri

se cannot leverage its transformation to enhance prof

itability, it becomes more susceptible to material mis

statement risks. Additionally, if internal oversight fai

ls and irregularities in the financial statements are no

t detected, there may be potential significant misstate

ment risks.

3.3 Material Misstatement Risks at the

Assertion Level

Digital transformation in enterprises inevitably invol

ves various transactions. Some companies may pursu

e mergers and acquisitions to expedite the transforma

tion process. If an enterprise cannot accurately assess

the operational status and goodwill of the acquired c

ompany, it may face subsequent repercussions. Furth

ermore, if an enterprise inflates transaction informati

on, reports losses as profits, or exaggerates earnings

while claiming to be profitable, such earnings manag

ECAI 2024 - International Conference on E-commerce and Artiﬁcial Intelligence

370

ement practices will not accurately reflect the enterpr

ise's true financial condition, thereby triggering mate

rial misstatement risks at the assertion level.

3.4 Detection Risk

Detection risk is closely related to the auditors' own

capabilities. Insufficient quality among the auditing t

eam is a significant factor contributing to audit risk i

n corporate economic responsibility (Chen Wenpeng,

2024). Therefore, auditors need to continually learn

and adapt to new technologies, with a focus on data i

dentification and processing. Traditional auditing tec

hniques and processes may not align with the needs

of digitally transformed enterprises. If auditors lack s

trong digital auditing skills and do not have sufficien

t knowledge of emerging technologies, this can lead

to incomplete or inaccurate data acquisition, thereby

increasing detection risk. Auditors who cannot effect

ively utilize digital technologies may find it challeng

ing to perform audits for digitally transformed enterp

rises.

4 EFFECTIVE MEASURES TO

PREVENT AUDIT RISKS IN

THE PROCESS OF

ENTERPRISE DIGITAL

TRANSFORMATION

4.1 Preventing New Audit Risks

Preventing new audit risks is an important challenge

currently faced in auditing work. With the complexit

y of the market environment, technological develop

ment, and audit subjects, audit risks exhibit character

istics of diversity and concealment. To effectively pr

event new audit risks, several approaches can be ado

pted. First, enhancing the quality and capabilities of

auditors is essential. In the information age, auditors

need to master digital auditing technologies. Professi

onal training should be strengthened for both auditor

s who have yet to acquire these skills and those who

have already done so, with regular training sessions c

overing digital auditing, information technology, aud

iting practices, and legal regulations to improve audi

tors' professional competencies and business capabili

ties.

Second, it is crucial to improve the enterprise data in

formation system, strengthen security, and address v

ulnerabilities to ensure that enterprise systems can re

spond to and mitigate threats such as hacker attacks,

malware, and internal data breaches. Protecting critic

al data and information is essential to provide a stabl

e and efficient foundation for conducting big data au

dits (Yan Lixin, 2024). Finally, with the rapid develo

pment of new technologies such as the internet and b

ig data, new economic models continue to emerge. A

uditors must closely monitor the risk characteristics i

n these areas and develop corresponding audit strateg

ies and measures. In summary, enhancing the quality

and capabilities of auditors, adopting advanced audi

ting technologies and methods, and focusing on emer

ging risk areas can effectively reduce the probability

and impact of audit risks, ensuring the smooth progre

ss of auditing work and the objectivity and fairness o

f audit results.

4.2 Preventing Material Misstatement

Risks at the Financial Statement

Level

Preventing material misstatement risks at the financi

al statement level is a crucial measure to ensure the t

ruthfulness, accuracy, and completeness of corporate

financial information. Digital transformation may ne

gatively impact corporate operations and increase the

risk of significant misstatements, a risk that auditors

can perceive (Ni Guoai & Sun Dandan, 2023). In to

day's environment, some enterprises may take risks t

o enhance profits, stabilize stock prices, and secure a

dditional financing by resorting to practices such as f

alsifying financial statements or misrepresenting ann

ual reports, which undoubtedly harms investor intere

sts.

To avoid such situations, auditors must thoroughl

y understand the internal and external environments

of the enterprises being audited, identify potential ris

ks, and determine appropriate auditing methods suita

ble for the specific enterprise to ensure the accuracy

of the audit procedures. During the preparation of fin

ancial statements, it is essential to identify areas that

may carry misstatement risks, evaluate the identified

potential risks, and analyze their impact on the accur

acy and authenticity of the financial statements. By e

xecuting substantive procedures such as confirmatio

ns, inventories, and inspections, auditors can obtain s

ufficient audit evidence to verify the truthfulness and

accuracy of the financial statements. Auditors must

ensure their independence during the audit process,

maintaining the independence of the auditing depart

ment and avoiding interference from management or

other stakeholders. They should adhere to the ethica

l standards and relevant legal regulations, ensuring th

e objectivity and fairness of the audit results.

Research on Audit Risks in the Digital Transformation of Enterprises

371

4.3 Preventing Material Misstatement

Risks at the Assertion Level

Material misstatement risks at the assertion level pert

ain to specific transactions, account balances, or disc

losures, directly impacting the accuracy and reliabilit

y of financial statements. To prevent material misstat

ement risks at the assertion level, enterprises must co

nduct thorough due diligence before acquiring anoth

er company. It is essential to take a firm stance on th

eir own interests, confirming that the target company

possesses robust profitability and normal operationa

l conditions that align with the enterprise's acquisitio

n objectives and that it can yield significant benefits

for the enterprise’s digital transformation progress. T

o mitigate risks associated with material misstatemen

ts at the assertion level, auditors need to conduct com

prehensive financial due diligence before any acquisi

tions, maintain a correct audit attitude, and avoid me

rely performing audits as a formality. Detailed testin

g of various transactions, account balances, and discl

osures should be conducted to identify misstatements

and detect fraudulent activities.

4.4 Preventing Detection Risk

To prevent detection risk, enterprises should first stre

ngthen the construction of the audit team and enhanc

e the quality of auditors. A qualified auditor should p

ossess solid professional capabilities, high ethical sta

ndards, and advanced risk awareness (Jia Tingting, 2

024). By enhancing their professional knowledge, au

ditors should acquire a variety of auditing methods a

nd multidisciplinary knowledge, including digital au

diting, information technology, and internal auditing,

to effectively address the increasingly complex audi

ting environment.

Fostering professional ethics is crucial; auditors s

hould receive thorough training in ethical standards t

o ensure they maintain objectivity, integrity, and pro

fessionalism throughout the auditing process. Establi

shing a robust auditing system involves formulating

and refining various regulations governing auditing p

ractices, clarifying auditing procedures, methods, an

d standards, thereby providing auditors with clear gu

idance and norms.

Optimizing the audit process is necessary to ensu

re an orderly auditing operation, minimizing detectio

n risks stemming from improper procedures. Establis

hing auditing standards, such as internal financial ma

nagement systems, codes of conduct for auditors, an

d auditing workflows and regulations, can facilitate t

he smooth execution of auditing tasks (Bai Xiaolin, 2

022). Implementing an audit review system to evalua

te critical audit documents, such as working papers a

nd audit reports, is essential to ensure the accuracy a

nd completeness of the auditing process.

Furthermore, a comprehensive audit supervision

mechanism should be established to monitor the audi

ting process in real-time, allowing for the timely iden

tification and correction of issues that arise during th

e audit. Utilizing modern auditing techniques and me

thodologies, such as big data and cloud computing, c

an significantly enhance the efficiency and accuracy

of auditing work, reducing detection risks caused by

human error. Strengthening communication with oth

er departments through timely information exchange

s can help verify the accuracy and reliability of audit

information. Ensuring the independence of auditors

is paramount; the audit department must maintain its

independence during the audit process, free from int

erference from management or other stakeholders, w

hile adhering to ethical standards and relevant legal r

egulations to ensure the objectivity and fairness of au

dit results

5. CONCLUSION

In summary, the digital transformation of enterprises

significantly impacts audit risks, encompassing eme

rging risk audits, material misstatements at the finan

cial statement level, material misstatements at the ass

ertion level, and detection risks. To mitigate these ris

ks, enterprises must implement corresponding preve

ntive measures, enhance the professionalism of audit

ors, cultivate adherence to ethical auditing standards

among audit personnel, ensure auditor independence,

and adeptly utilize digital technologies.

The effects of digital transformation on auditing

are multifaceted; they manifest not only at the techno

logical level but also involve updates to auditing phil

osophies and methodologies. For auditors, adapting t

o new auditing approaches in this evolving environm

ent requires continuous learning, particularly in infor

mation audit technologies. This commitment is essen

tial for providing robust support for the sustainable d

evelopment of enterprises and preventing the recurre

nce of audit risks.

Moreover, it is crucial to ensure that auditing pra

ctices meet the demands of the digital age while proa

ctively addressing emerging audit risks and formulat

ing flexible and effective risk management strategies.

Throughout this process, maintaining independence

and objectivity in audits remains a core principle.

This study acknowledges that research on emergi

ng audit risks and information audit technologies is s

till insufficiently developed. Future research could e

ECAI 2024 - International Conference on E-commerce and Artiﬁcial Intelligence

372

xplore, from a dialectical perspective, the impacts of

enterprise digital transformation on audit risks and id

entify key areas of digital technologies relevant to thi

s context. Such exploration would provide further su

pport for the study of audit risks associated with digi

tal transformation. Digitalization is not only the path

forward for enterprises and auditing but is also perm

eating various aspects of modern society and individ

ual life. Consequently, the implications of digitalizat

ion and the societal issues that arise warrant careful c

onsideration.

REFERENCES

Bai, X. (2022). Discussion on innovation in audit manage

ment of enterprises in the information age. Research o

n Industrial Innovation, 10, 157-159.

Chalmers University of Technology, Gothenburg, Sweden.

(2020). Strategies for digitalization in manufacturing f

irms. California Management Review, 4, 17-36.

Chen, W. (2024). Analysis of economic responsibility audi

t risks in enterprises and prevention strategies. Audit a

nd Finance, 8, 17-19. https://doi.org/10.19419/j.cnki.3

6-1264/f.2024.08.002

Ni, G., & Sun, D. (2023). Digital transformation of enterpr

ises and auditor risk response behavior: A study based

on key audit matters. Journal of Tongling University, 3,

53-58. https://doi.org/10.16394/j.cnki.34-1258/z.2023.

03.013

Jia, T. (2024). Discussion on accounting audit risk factors

and information audit pathways. Township Enterprise

Bulletin, 15, 141-143.

Qi, Y., & Cai, C. (2020). The multiple impacts of digitaliz

ation on the performance of manufacturing enterprises

and its mechanism. Learning and Exploration, 7, 108-1

19.

Yang, Y., & Gao, M. (2024). Digital transformation of ent

erprises: Conceptual connotations, statistical measurem

ent techniques, and improvement ideas. Statistical Res

earch, 3, 62-73. https://doi.org/10.19343/j.cnki.11-130

2/c.2024.03.005

Yan, L. (2024). Assessment and control analysis of big dat

a audit risks based on entropy weight method: A case s

tudy of Company A. Financial Management Research,

8, 51-56.

Zhong, X., & Li, H. (2024). Digital transformation of enter

prises: Concept definition, main digital technologies, a

nd measurement methods. Financial Economics, 2, 60-

69+100. https://doi.org/10.14057/j.cnki.cn43-1156/f.2

0240326.001

Zhai, H., & Li, Q. (2022). Does digital transformation imp

rove audit quality? An empirical test based on a multip

le time point double difference model. Audit and Econ

omic Research, 2, 69-80.

Zhou, G. (2023). Exploration of accounting audit risk facto

rs and information audit methods in enterprises. Financ

e and Accounting Learning, 7, 110-112.

Research on Audit Risks in the Digital Transformation of Enterprises

373