Article 1
On the means of whitewashing financial statements
Enterprises usually whitewash financial statements for their own benefit. From the perspective of laws and regulations, the whitewashing of financial statements can be divided into two categories: one is whitewashing through legal means, which is called earnings management; The other is whitewashing by illegal means, that is, profit manipulation. The whitewashing of legal means is generally caused by the selectivity and flexibility of accounting policies and accounting methods and the inherent defects of accrual basis, while the whitewashing of illegal means comes from the illegal and false behavior of enterprises. Therefore, the methods commonly used by enterprises to whitewash financial statements can be roughly divided into four categories: falsifying accounts, falsifying accounts, exploiting loopholes and other whitewashing methods.
1, real account, fake account.
False accounting refers to the failure to deal with the economic business that does occur in an enterprise in accordance with relevant laws, regulations and accounting standards. Common whitewashing methods include: fictitious asset account, improper accounting of equity investment, adjustment according to other receivables and payables, mixing capital expenditure with revenue expenditure, improper recognition of income and expenses, etc.
Virtual asset account refers to the assets that are not expected to bring economic benefits to the enterprise in the future, but falsely increase the assets and profits of the enterprise in the name of assets, such as prepaid expenses that have exceeded the benefit period. Du pointed out in 2003: "Fictitious asset accounts mainly mean that some enterprises refuse to publish items that are no longer useful to enterprises, such as fixed assets that are not productive, and keep accounts for many years in order to realize inflated assets and profits" [1].
Using other receivables and payables for adjustment shows that enterprises often use other receivables to hide income to reduce taxes and fees, and use other payables to hide potential losses to inflate profits. According to the current accounting system, other receivables and other payables are mainly used to reflect other funds generated by enterprises' non-purchase and sale activities except accounts receivable, prepayments, accounts payable and advance receipts. Under normal circumstances, its ending balance is not large, but in many enterprises, its balance is equivalent to or even greatly exceeds that of accounts receivable, prepayments, accounts payable and accounts received in advance. This shows that this method is widely used.
In addition, it is also common to mix capital expenditure with revenue expenditure and improperly confirm income and expenses. The mixture of capital expenditure and revenue expenditure is to divide expenditure only according to the enterprise's own interests, and capitalize revenue expenditure in order to inflate assets and profits; In order to reduce the tax burden, capital expenditure is regarded as income expenditure. Incorrect recognition of income and expenses includes two aspects: first, the recognition time of income and expenses is inappropriate; Second, non-profit and loss subjects are included in income expenses or income expenses are not included in profit and loss subjects. In the first level, enterprises often confirm their income in advance and delay the carry-over cost to inflate their profits or reduce their tax burden. Wang Xi 20 10 pointed out: "In order to inflate the current performance, many companies usually confirm the sales revenue in their accounts before the business happens or when the revenue recognition is not fully satisfied." [2] At the second level, enterprises treat non-income as income in order to inflate profits, or include it in non-income subjects in order to hide income. For example, the recovery of accounts receivable is included in income.
2 the false account was really done.
False accounting refers to fictitious economic business, which is handled according to correct procedures and methods, thus whitewashing financial statements. There are two common means: one is fictitious assets, that is, inflating or shrinking book assets by compiling various false materials; Second, fictitious economic business, that is, "fictitious income by forging transaction facts", Zhang Han, 20 12[3]. There are often three ways to fabricate economic business, namely, issuing VAT sales invoices, falsely issuing product sales invoices and fabricating export business. Zhao Xiaogang pointed out in 2009: "We found that most of the false income was obtained through fictitious sales contracts, and the income was deliberately forged without any authenticity." [4]
3 drill holes.
Taking advantage of loopholes means that enterprises use loopholes and defects in accounting laws and regulations and accounting treatment methods to whitewash financial statements. This type of whitewash often has inappropriate accounting estimates and local aid fraud. In the enterprise accounting system, provision for bad debts should be made for accounts receivable at the end of the period; Inventory, fixed assets, intangible assets and so on. Provision for impairment can be withdrawn at the end of the period; Assets measured at fair value, such as trading financial assets, should be adjusted according to changes in fair value. This kind of accounting treatment can not be separated from the professional judgment and estimation of accountants, and it is subjective to some extent. Therefore, many enterprises take advantage of loopholes and use inappropriate accounting estimates to eliminate potential losses and inflated profits. Therefore, some listed companies use the choice and change of accounting policies and accounting estimates to commit financial fraud. In addition, many enterprises invest and lease abroad. Through the asset evaluation, there will be huge potential losses, such as bad debts and damaged inventory. As an assessment of impairment, write off "capital reserve" to inflate profits.
In addition, enterprises often increase profits through local aid fraud. Fu Guangwu said in 2003: "The so-called local * * * aid fraud means that listed companies manipulate profits with local * * * aid, and the main forms of local * * * aid are tax incentives and financial subsidies." [5] Therefore, in order to support listed companies, many places, on the one hand, over-implement the tax refund policy of listed companies, making their actual tax rate even lower than15%; On the other hand, listed companies are given huge financial subsidies to enable them to implement profit targets, so many enterprises take this opportunity to manipulate profits to cover up the fact that their main business is sluggish and their profitability is weak.
4 other means of whitewashing.
In addition to the above whitewashing means, there are other means, such as covering up transactions or facts, cash flow manipulation and so on. Du pointed out in 2003: "But at present, for the purpose of whitewashing statements, companies usually cover up transactions or facts in the notes to statements. Common fraudulent means include concealing important matters or not disclosing them in time." In the notes to the statements, the enterprise shall disclose its major matters, including entrusted financial management, blood drawing by major shareholders, related party transactions, litigation matters, etc. , so that information users can make correct judgments and decisions, but in order to cover up their real face of weak profitability or high financial risk, enterprises will cover up their transactions or facts.
For example, 200 1, ST Aohaifa not only covered up all the losses, but also made a profit of more than 20 million yuan through asset replacement with its subsidiaries, which is a typical related purchase and sale fraud. Cash flow manipulation came into being after 1997 Asian financial crisis. At that time, a large number of enterprises went bankrupt and survived, which made people find that the cash flow situation was far more important than the accounting surplus. As a result, the cash flow of whitewashing financial statements is popular. For example, negotiating with debtors to repay accounts receivable in advance can improve cash flow, enhance investors' confidence and attract potential investors. Ren Haisong pointed out in his article in 2006: "The fraud form of cash flow statement is mainly to show the good cash flow owned by enterprises, and at the same time, take into account the long-term interests and make appropriate investment and financing." [6]
abstract
It can be seen that there are various means to whitewash financial statements, all of which are out of the interests of the enterprise itself, and different interests will determine different means. In order to assess performance, obtain credit funds, and facilitate stock issuance, enterprises will adopt means of inflating profits and assets, such as fictitious assets and confirming income in advance. In order to reduce the tax payment, enterprises adopt the means of reducing profits falsely, such as making more provision for impairment and changing the depreciation method of fixed assets from straight-line method to accelerated depreciation method. The scene of the Central Dialogue on the evening of February 7, 2003, 65438, best illustrates this problem. At that time, Qin Xiao, chairman of China Merchants Group, publicly declared to Yi Lee, deputy director of the State-owned Assets Supervision and Administration Commission, and the guests on the spot: "I was in Beijing for a meeting these two days, and the company leaders called me and asked me whether the profit this year was/kloc-0.7 billion or/kloc-0.8 billion. Or 2 billion? I said I'll go back and look at SASAC's assessment rules before I give you a decision. " This passage wittily reveals the universality and seriousness of financial statement whitewashing, so in order to avoid financial statement whitewashing, improve the reliability and relevance of financial statement information, and maintain the normal implementation of capital market, it is of great significance to clearly grasp and understand various means of financial statement whitewashing.
References:
Du Aixia. On the whitewashing of financial statements [D]. Beijing: university of international business and economics, 2004.
[2] Wang Xi. Whitewash means and audit strategy of enterprise financial statements [D]. Chongqing: Southwest University, 20 10.
[3] Zhang Han. Research on financial fraud of listed companies in China and its governance [D]. Chengdu: Southwestern University of Finance and Economics, 20 12.
[4] Zhao Xiaogang. Research on financial report fraud of listed companies in China based on fraud triangle theory [D]. Chongqing: Chongqing University, 2009.
[5] Fu Guangwu. Types of management fraud in China's listed companies and audit countermeasures [J]. Contemporary Finance and Economics, 200309: 126- 128.
[6] Ren Haisong. Research on financial report fraud of listed companies and its detection [D]. Doctoral thesis of Dongbei University of Finance and Economics, 2006: 87- 1 13.
the second
Analysis of financial statement analysis methods
With the increasing demand for accounting information disclosure in commercial society, it is impossible to meet the requirements of modern accounting simply from the surface of financial statements, especially it is difficult to explain the quality of enterprise operation and the size of operating results. This paper focuses on some important financial statement analysis methods and their limitations. According to the knowledge already mastered, some feasible suggestions and suggestions are put forward scientifically and reasonably, so as to make the financial statement analysis method system more perfect.
Keywords financial statements; Report analysis; Analysis
I. Overview of financial statement analysis
Significance and function of financial statement analysis. Financial statement analysis, also known as financial analysis, is a management work that comprehensively compares and evaluates the financial status, operating results and cash flow of an enterprise by collecting and sorting out the relevant information in the financial accounting report of the enterprise, combining with other relevant supplementary information, adopting scientific evaluation standards and applicable analysis methods, and following standardized analysis procedures, so as to provide management decision-making and control basis for users of financial accounting reports. The analysis of financial statements can not only evaluate past business performance, measure current financial situation, but also predict future development trend.
2. Specific objectives of financial statement analysis. 1. Provide decision-making basis for enterprise investors and creditors. The analysis of financial statements can feed back the information of financial status, operating results and cash flow of enterprises, predict future development and changes, and help investors and creditors make rational investment decisions and guaranteed loan decisions. 2. Provide a basis for business decision-making. Through the analysis of financial statements, we can make a reasonable evaluation and scientific prediction on the financial situation, operating results and cash flow of enterprises, thus guiding the business behavior of enterprises. By prompting the contradictions and problems in the business activities of enterprises, we can find out the causes of contradictions and problems, and further overcome and improve them, so as to strengthen management and improve the management level and efficiency of enterprises.
Second, the financial statement analysis method
Ratio analysis method. Ratio analysis refers to obtaining a series of financial ratios with certain significance and logical relationship by comparing the amounts of related items in financial statements, thus revealing the financial status, operating results and cash flow of enterprises. It is a commonly used analysis method in report analysis. Ratio analysis mainly uses the special form of relative number index for analysis. Compared with the absolute number, it has the characteristics of strong comparability and dynamic trend, which standardizes the economic information transmitted by accounting data of enterprises of different sizes. When using the ratio analysis method, it is first necessary to make sure that there are links between the different projects being analyzed, which is the premise of making the evaluation results more accurate by using the ratio analysis method. Ratio analysis often relies on comparative analysis and trend analysis.
Comparative analysis method. Comparative analysis is an analytical method to compare actual data with specific standards, so as to find out the regularity and the differences between the compared objects. It is the most basic analysis method. Comparative analysis method mainly includes longitudinal comparison method and horizontal comparison method. The form of comparison can be the comparison between the actual and planned or quota indicators in this period, or the comparison between the actual and the previous period, so as to understand the changes and trends of enterprise economic activities, and also compare the related projects and indicators of enterprises with the same industry at home and abroad. But no matter which method or form of change, its function is to reveal the objective gap between indicators and point out the direction for further analysis.
Three. Problems and limitations of financial statement analysis methods
The limitations of the analysis method itself. Although there are many analysis methods, no matter which analysis method is a reflection of the past economy, these comparison standards will change with the change of environment. However, when we analyze, we often only pay attention to the comparison of data and ignore the changes in the business environment, so the analysis conclusion is not comprehensive. Ratio analysis is a post-event analysis method, which shows a certain lag; Under the condition of market economy, especially affected by the limitations of financial statements; Even sometimes accounting information is manipulated artificially, which makes the calculation results lack authenticity. Due to the limitations of financial statements, the data of different enterprises or even the same enterprise in different periods are not comparable, which makes it impossible to compare. Therefore, comparative analysis is bound to have limitations. Because the data of financial statements used for analysis belong to different years and accounting periods, the data of accounting information has not been processed. Once the accounting conversion method changes or is affected by inflation and other factors, the data will lose comparability, and the financial statements in different periods will also lose comparability.
Secondly, it adopts a single financial analysis method for analysis. Any financial index has its scope of application and limitations. If only some analytical method is used to evaluate the financial status and operating results of an enterprise, there are often great defects, which will make analysts have a wrong understanding of the real financial status of the enterprise and even cause serious consequences.
For example, investors want to know about the operation of Company A in order to make a decision on whether to continue investing. So he entrusted analyst Li Jinxing with financial analysis. Li collected the relevant information of Company A in recent two years and calculated the return on total assets of the Company in recent two years, as shown in Table 1. The results show that the profitability of the company decreases, and the efficiency of asset operation also decreases. As a result, investors put forward the idea of divestment to the company.
After company A knew it, it immediately collected information, analyzed the calculated return on assets, and compared it with the same industry, and found that the total return on assets was higher than that of the same industry. Then it is analyzed by factor analysis. The results show that the decline of asset turnover rate mainly leads to the decline of asset return rate, asset growth rate is faster than income growth rate, and the company's sales profit rate is increasing. After Company A explained the objective and true situation to investors, investors gave up the idea of withdrawing funds. In this case, Li simply made an objective evaluation with the ratio analysis method, but did not make a comprehensive evaluation. Company A used horizontal comparative analysis and factor analysis, which truly reflected the situation of the enterprise and avoided missing opportunities.
(3) Ignore non-financial indicators. In financial analysis, some analysts just list a series of financial indicators in the same way, ignoring the subject and purpose of financial analysis and the important role of non-financial indicators.
For example, in 20 12, Company B applied for a long-term loan from XX Bank for business expansion, and provided XX Bank with its financial statements for 20 1 1 year. By calculating the solvency index of XX Bank, as shown in Table 2, although the financial position and operating results of Company B are very good, it does not meet the standards set by the bank.
After understanding the situation, Company B communicated with the bank in time and proposed that the company belongs to the sunrise industry supported by the state. Although the current asset-liability ratio is high and the profit rate is low, it is in the leading position in the industry, and has a number of self-developed intellectual property rights, which has broad development prospects and requests banks to consider it. Finally, Company B got a long-term loan from the bank, its business expanded and entered a rapid development cycle, and the bank got what it wanted. Here, XX Bank failed to incorporate non-financial indicators such as industry environment into the analysis system, ignoring the important role of non-financial indicators, which led to the inability to fully grasp the company's real solvency.
Fourthly, the improvement of financial statement analysis method.
Combination of various analytical methods.
Various analytical methods are interrelated and complementary, but they also have their own limitations. When enterprises use financial analysis, they should not only use one method to make investment judgments, but should combine various methods. In addition, we should pay attention to the combination of dynamic analysis and static analysis, and analyze the current situation on the basis of clarifying the past situation, so as to properly predict the future of the enterprise.
2. Gradually introduce non-financial indicators.
With the change and development of the global economic situation, only analyzing the traditional financial indicators has various defects. Financial indicators based on the past only reflect the performance of last year, lacking predictability and development, while non-financial indicators are the opposite, often facing the future. In the era of knowledge economy, enterprises must organically combine financial indicators with non-financial indicators in order to conduct comprehensive, long-term and strategic evaluation and analysis of enterprises.
References:
Li Yuanyuan. On financial statement analysis, Friends of Accounting, 20 128: 36.
[2] Wang Shuping. Financial Report Analysis, Tsinghua University Publishing House, Peking University Publishing House, 2003: 50.