Analysis of financial fraud of listed companies (opening report) Abstract The financial report fraud of listed companies has always been a "stubborn disease" in the securities market, which is extremely harmful. This paper attempts to systematically analyze the motives of financial report fraud of listed companies, the means of whitewashing statements and the methods of identifying and curbing fraud, aiming at helping information users. Financial fraud refers to the intentional behavior of obtaining benefits and causing others to suffer losses by illegal means such as financial fraud, which can be roughly divided into two categories: asset embezzlement fraud and financial report fraud. The fraudsters who embezzle assets are employees and the victims are organizations. For example, in order to seek their own interests, employees take advantage of their positions and take financial measures to occupy the assets of the state and the company, forming corruption; The counterfeiters of financial report fraud are company management, and the victims are investors and creditors. If the management of the company intentionally misstates or omits the income during the reporting period, it will seriously mislead the information users. Compared with the two, financial report fraud is more concealed and more harmful. In particular, the falsification of Bosera's financial report not only misleads investors and creditors, but also makes them make wrong judgments and decisions based on inaccurate financial information, which greatly affects the function of optimizing resource allocation in the securities market. In recent years, major cases of financial report fraud have appeared constantly, and there are new trends. Model essay: 1. The motivation of financial report fraud of listed companies mainly comes from internal and external pressures. The external pressure mainly comes from the securities market, and the internal pressure mainly comes from the economic interests of managers, which are closely related to their work performance. Therefore, the motivation of financial report fraud of listed companies is the motivation of financing and refinancing; The second is to avoid being suspended from the market; The third is market motivation; Fourth, the motivation of remuneration contract; Fifth, tax avoidance and selfish motives. (1) Strive for listing and rights issue. By issuing shares to go public, the company can get a lot of money. Some listed companies regard stock financing as the best way to make big money without paying the cost of capital. However, the company law has strict regulations on the listing of enterprises: enterprises must be profitable for three years and have outstanding operating performance before they can pass the examination and approval of the CSRC. In order to meet these requirements, unqualified companies will carry out financial packaging to obtain listing qualifications and "create" conditions for listing. Since the rights issue is an important channel for listed companies to solve their long-term large capital demand when refinancing, and the CSRC requires listed companies to "have an average return on equity of not less than 10% in the last three years and not less than 6% every year", therefore, the return on equity of 10% has become the threshold for listed companies to increase capital and issue rights. Statistics show that the return on equity of many listed companies has just reached 10%. Both "Liming Shares" and "Zheng" were listed with fictitious profits in the first three years, which proves that the primary motivation of listed companies to falsify their financial reports is to obtain the qualification for listing and allotment. (2) Another motivation to avoid wearing a hat and avoiding financial report fraud of listed companies in China is to avoid wearing a "ST" hat. The so-called "st" hat means that the stock exchange audited the listed company and found that its net profit was negative for two consecutive fiscal years, and the net assets per share in the latest fiscal year was lower than the face value of the stock, and the daily fluctuation range was limited to less than 5%. The word "ST" was added before the stock name, indicating that there was a risk of delisting. Listed companies will be delisted for three consecutive years of losses. The company's delisting is not only a huge loss for shareholders, but also a long-term loss of the company's qualification to raise funds from the society, which seriously threatens the company's survival. In order to avoid continuous losses and keep scarce shell resources, listed companies need to turn losses into profits. However, it is not easy to turn losses into profits in a short time. Therefore, some listed companies that have suffered losses for two consecutive years try their best to cheat or whitewash their financial statements, and make profits through non-operating gains and losses, related party transactions and other means to avoid delisting and keep their listing qualifications. (3) Motivation of profiteering in the secondary market: 1. Improve the image of the secondary market. In the securities market, potential investors mainly make decisions based on the financial reports of listed companies. At present, the major shareholders and management are most aware of the company's asset quality and development prospects. In order to improve the image of the secondary market, they will release the signal of good performance by whitewashing the financial statements. 2. It is convenient for secondary market speculation. China stock market is still in an immature stage of development. Listed companies communicate with institutional investors and whitewash financial statements, so that stock prices soar simultaneously. Or, in order to make the stock price fluctuate as expected, let the stock price fall temporarily, let the manipulator buy the stock at a low price, gain greater control and sell it at a high price for profiteering, and use the financial report to achieve the goal. The "Yinguangxia" fraud case is a typical case. 3. Increase chips for mergers and acquisitions. Because the listing qualification is not easy to obtain, many non-listed companies try to achieve the purpose of backdoor listing through mergers and acquisitions. The most important thing in M&A negotiation is the M&A price. There is no doubt that the stock price of listed companies with excellent performance can fetch a good price, so listed companies may whitewash their financial statements to increase their chips in mergers and acquisitions. (IV) Meet the needs of performance appraisal. Most listed companies in China are restructured from state-owned enterprises, and management compensation is related to their performance and the preservation and appreciation of state-owned assets. Whether they can create good performance directly determines the economic benefits (such as annual salary and bonus) and career development of company leaders. However, the business activities of enterprises are affected by many factors, and it is difficult to ensure annual growth. If managers want to ensure that all indicators meet or even exceed the standard during their term of office, they will meet the assessment needs by whitewashing financial statements, thus showing good performance. (5) The income tax for tax reduction and dividend distribution is based on accounting profits, adjusted to taxable income through tax adjustment, and then multiplied by the applicable income tax rate. Therefore, for the purpose of tax evasion, tax evasion, reducing or delaying tax payment, some listed companies use fraudulent means to increase profits and reduce national fiscal revenue. At the same time, some listed companies encroach on shareholders' rights and interests, turn the dividends that should be paid to shareholders into production and operation funds, and give more bonuses to enterprise managers with "Qian Shengqian". However, this is a serious violation of national laws and the company's articles of association, and it will also use fraudulent means to reduce profits to adjust the performance of the statements, so as to achieve the purpose of not paying dividends to shareholders or paying less dividends. The motivation of financial report fraud determines the type of whitewashing of accounting statements: based on the motivation of items (1) to (4) above, accounting statements generally appear in the form of profit maximization and profit balance; Based on the motivation of item (5) above, accounting statements generally appear in the form of minimizing profits. As far as listed companies are concerned, the biggest harm of whitewashing accounting statements is the maximization of profits, that is, the so-called false profit and real loss, concealing liabilities. Second, the means of fraudulent financial reports of listed companies. Fraud in financial reports of listed companies is directly manifested in whitewashing accounting statements. The so-called whitewashing of accounting statements refers to the deliberate behavior of the company's management to make the accounting statements reflecting financial status, operating results and cash flow reach the "expected" state through fraudulent means. This is a concentrated form of financial fraud. The whitewashing of listed companies' accounting statements has become a "stubborn disease" in the securities market, and scandals have frequently exploded. With the changes of China's economy, legal environment and securities market, the means of profit manipulation and report whitewashing of listed companies are also increasing, upgrading and renovating in various ways, which can be described as follows. (a) inflated sales revenue, inflated profits 1. Fictitious customers, fictitious sales. Some listed companies forge customer orders, shipping documents and sales contracts, issue sales invoices recognized by tax authorities, and fictitious sales objects and transactions; Or although it is based on a real customer, it artificially expands the sales volume on the basis of the original sales business, so that the revenue recognized by the company under this customer is far greater than the actual sales revenue; Or make fake sales before the reporting date (such as the end of the year), increase accounts receivable and operating income at the same time, and then return the goods in the name of unqualified quality after the reporting date (such as the following year), thus inflating the current profits. 2. Live within your means and confirm your income in advance. Some listed companies recognize revenue when the relevant sales procedures have yet to be completed, even the sales have not been completed, the goods have not yet been delivered, the risks and rewards of the products sold have not been transferred, the commercial discount is controversial, and the sales amount is uncertain; Or confirm the income when the customer still has the right to cancel the order or postpone the purchase, thus inflating the current profit. (2) Underestimate the period expenses, and inflated profits are mainly reflected in the entry of delayed expenses. 1. Some listed companies account for some actual expenses as long-term deferred expenses and property losses to be handled, but these items are not real assets of enterprises, but virtual assets, which provide a "reservoir" for enterprises to manipulate profits. Listed companies inflated current profits by delaying amortization, amortizing less or not amortizing the expenses already incurred. 2. Some listed companies have confused the boundary between interest capitalization and expense, capitalized the interest that should have been expensed as the cost of construction in progress, increased the value of fixed assets and inflated the current profits. (3) Change the accounting policy and adjust the profit by 65,438+0. Some listed companies change the service life, estimated net salvage value and depreciation method of fixed assets at will, so as to raise depreciation more to reduce profits or raise depreciation less to increase profits in the reporting year. 2. Some listed companies adjust their profits by changing the pricing method of issued inventory. Before the implementation of the new standard, the original standard and system stipulated that there were five methods to choose from for the valuation of issued inventory, and different methods would have different effects on the current profit during the fluctuation of inventory price. When the inventory price rises, the first-in first-out method is used to calculate, which reduces the operating cost and increases the current profit; If the LIFO method is adopted, the operating cost will be transferred more and the current profit will be reduced. If the inventory price falls, the opposite is true. That is, if the first-in first-out method is adopted, the operating cost will be transferred more and the current profit will be reduced; If the LIFO method is adopted, it will reduce operating costs and increase current profits. Fortunately, the new accounting standards have abolished the LIFO method, which has a great inhibitory effect on listed companies' means of adjusting profits by changing the inventory pricing method. Even if listed companies still choose to change among the three methods allowed by accounting policies (first-in, first-out method, weighted average method and individual pricing method), the space for adjusting profits is much narrower than before. (4) A typical case of manipulating profits by playing with impairment reserves is Sichuan Changhong (2003 and 2004). The main means for listed companies to abuse accounting estimates to manipulate profits on demand is to use professional judgment to withdraw and write off a large number of asset impairment reserves. 1. Those listed companies that continue to make small profits and/or have refinancing targets in the near future often have insufficient provisions. Even in the case of "double high" industry risk and business risk, they still estimate bad debts and inventory depreciation in a low proportion. 2. Those listed companies with good but unstable performance will make more provision for impairment when their profits rise; When the profit drops, it will rush back to the impairment reserve and smooth the profit year by year. 3. Those listed companies that are losing money and are on the verge of delisting do not make or make less provision for asset impairment at ordinary times, but make sufficient provision when it is "necessary", adopt "shock therapy" and "leave room for loss". Usually, after the loss in the first year, a large amount of asset impairment reserves are withdrawn in the second year, which leads to huge losses in the second year, and then a large amount of asset impairment reserves are transferred back in the third year for various reasons, which leads to financial statements in the third year. Or choose a super-large withdrawal in a certain year, and then slowly rush back in the following years, thus creating a financial report with a small and steady growth in performance. Fortunately, the new accounting standards for business enterprises have made strict provisions on the reversal of asset impairment reserves. Once the impairment provision for long-term assets such as long-term equity investment, fixed assets, construction in progress and intangible assets is withdrawn, even if the value rises afterwards, the withdrawn impairment provision cannot be reversed, and it can only be recorded after the relevant assets are disposed of. The space for adjusting profits by using these impairment reserves has been greatly reduced. This provision of the new standard has played a certain role in restraining the profit manipulation of listed companies, but other items other than the above items are not specified in the original eight impairment reserves, and the recognition and measurement of asset losses are based on "continuous evaluation, as long as the recoverable amount of assets is lower than their book value", which still leaves some listed companies with room to confirm impairment losses as needed, which still needs close attention. (V) The typical case of asset restructuring "turning losses into profits" is Xiang Jiugui (2003 and 2004). Asset reorganization is the asset replacement and equity replacement implemented by enterprises to optimize capital structure, adjust industrial structure and complete strategic transfer. However, asset reorganization is used by some listed companies to whitewash accounting statements. Those listed companies caught in PT and ST attempt to get out of the loss state through reorganization, carefully plan asset reorganization and carefully design asset replacement, and exchange inferior or idle assets for high-quality or profitable assets without justifiable commercial reasons to increase profits. Asset reorganization has become a tool for many listed companies to turn losses into profits and an umbrella to avoid delisting. (VI) Typical cases of transferring benefits by using related party transactions are Jinan Qingqi (2003) and Chongqing Industry (2004). Many listed companies and related parties in China distort trading conditions and transfer profits, thus breeding illegal or improper related party transactions to adjust book profits and whitewash statements. Among them, the reorganization of related parties is a shortcut for loss-making companies to turn losses, and its means are various: 1. Through the transaction arrangement, design related transactions with legal basis and no economic substance, and fictional enterprise management; 2. Listed companies conduct purchase and sale activities with their affiliated enterprises at high or unfair transaction prices, and realize interest transfer through price difference; 3. Collect the capital occupation fee of affiliated enterprises, or use low interest rate or high interest rate to conduct capital transactions and adjust financial expenses; 4. Share the same expenses or transfer the management expenses and advertising expenses to the parent company; 5. Externalization of related party transactions-the controlling party borrows money from the bank through the listed companies it controls, and then the controlled listed companies guarantee each other to borrow money for related party transactions and fabricate performance. (7) Abuse of error correction for profit, such as listed companies such as Capital Corporation (2004) and TCL Communication (2003). It regards the provision for impairment of assets as the retrospective adjustment of accounting error correction in the early stage, and the two complement each other, which makes accounting error correction generate huge "energy"-profit, avoid losses, escape the fate of ST and keep the qualification for refinancing. It interprets accounting fraud as accounting error, which is the reality of accounting fraud in the name of accounting error correction-first "know what it is" when necessary, then "know why it is", and finally choose the right time to "repent" and constantly "change face" to report to the outside world; Or minor problems, minor problems, and major mistakes are announced in the form of unobtrusive small announcements (or supplementary announcements) to get away with it. (8) Undercounting business income and evading taxes. There are also some excellent companies with huge profits. In order to pay less value-added tax and income tax, they underestimate their income and conceal it. Some people don't recognize income when they should. For example, if they directly receive and ship products, they have received the payment and handed over all invoices and bills of lading to the other party, which has met the income recognition conditions, but they record the payment in the "accounts received in advance" account, delaying the reflection of income; Some directly use income to offset costs, that is, "accounts receivable" or "bank deposits" correspond to "goods in stock" and do not reflect sales business; Some fictitious sales receipts withhold income and pay less taxes by means of false receipts (paying the money to other subordinate service companies and recording it in the subject of "other payables"); Some deemed sales businesses do not reflect the VAT output tax. It should also be noted that in reality, these methods of whitewashing accounting statements are often used by many listed companies alone or in combination, and also appear in the preparation of annual financial statements of a listed company at the same time or one after another. Three. There are often some signs (or warning signals) before the identification of financial report fraud of listed companies is exposed, that is, listed companies that are likely to commit financial report fraud have the following characteristics and signs: First, they have suffered losses for two consecutive years, and their operating performance has not been fundamentally improved in the third year, and they are threatened with suspension or delisting, or their expenses are growing faster than their income, and their continuous operating losses make enterprises face the threat of bankruptcy or hostile takeover; Second, the net cash flow generated by operating activities is negative year after year, or although the book profit does not bring enough cash inflow, it cannot make ends meet and cash is scarce; Third, there are major, abnormal related transactions or extremely complicated transactions; Fourth, the loss of the whole industry or excessive competition in the industry, or the company's industry downturn that year; Fifth, the personal wealth of company directors or management is closely related to the company's performance; Sixth, there are defects in corporate governance structure and frequent changes in management; Frequent change of accounting firms, etc. In view of these characteristics and symptoms, we should identify and prevent financial report fraud of listed companies from the following aspects. (1) Distinguishing whether the business performance is true or false Listed companies should pay close attention to whether the company's main production equipment is seriously idle, whether the production workshop stops production, and whether the inventory is greatly increased. If these phenomena exist alone or at the same time, but there is no corresponding decline in operating performance during the reporting period, there is the possibility of performance fraud. Check suspicious account book records, accounting vouchers, invoice stubs and delivery vouchers to find out whether the recorded income has been invoiced and delivered in the same period; Pay attention to whether there are large or sustained profits in the future of assets and liabilities, and find out whether these profits are the part of centralized "sales" at the end of the year, so as to identify whether the company confirms income in advance or fictitious income. (II) Analysis of Profit Proportion When analyzing the profits of listed companies, we should focus on analyzing the proportion of the main business in the profits, that is, whether the profits mainly depend on the performance of the main business, rather than mainly from non-recurring profit and loss items; It is necessary to deeply analyze the composition of non-recurring gains and losses listed in the notes to the financial statements of listed companies and the net profit after deducting non-recurring gains and losses, so as to judge whether the company's profit source is stable and whether it relies on whitewashing other profit items to increase its performance. (3) When carefully analyzing the analysis report of assets impairment reserve, we should especially carefully analyze the policies of listed companies to withdraw assets impairment reserve. Generally speaking, listed companies with continuous meager profits and/or recent refinancing targets often have insufficient provision; However, listed companies on the verge of critical profit and loss and delisting sometimes make huge provisions. Therefore, for such listed companies with fragile performance indicators, it is advisable to first compare their accrual policies with those of the same industry or related industries to determine whether there is any abnormality; Then, it analyzes whether the estimation basis and basis are disclosed in detail in its financial report, so as to identify whether the listed company is playing the game of impairment reserve. (4) Paying attention to virtual assets The virtual assets in the annual reports of listed companies deserve close attention. If the proportion of virtual assets is larger than that of normal assets, or the growth rate (or relative change rate) of virtual assets fluctuates greatly, there may be cases of inflated profits through virtual assets. It is characterized by more virtual assets records and less dissemination. Focus on checking the subsidiary ledger of all kinds of virtual assets, pay attention to the accounting policies on the recognition and amortization of virtual assets in the notes to the accounting statements, and pay special attention to the items that have increased significantly this year and have not been amortized normally. (V) From the perspective of related party transactions, the profits generated by listed companies using related party transactions are basically reflected in specific items such as "other business profits", "investment income", "non-operating income" and "financial expenses". The identification method is: 1. Calculate the percentage of profit generated by related party transactions in each project and the percentage of these projects in the total profit of the enterprise, and judge the dependence of enterprise profitability on related party enterprises; 2. Analyze the necessity and fairness of these related party transactions. For example, whether the transaction price is based on fair market transactions, whether the market price of the transaction is unfair, and the internal sales price imposed by the controlling party on the controlled party. At the same time, we should also learn about the relevant materials of listed companies from the company's industrial and commercial authorities, including capital verification reports, filing and registration materials for equity transfer, etc. , and should especially inquire about the industrial and commercial registration information of the controlling shareholder to understand the ownership of the company's control rights, so as to effectively identify the behavior of whitewashing statements by using hidden related party transactions. (VI) With the help of cash flow analysis, the quality of profit can be judged by comparing and analyzing the net cash flow generated from operating activities, investment activities and financing activities with the main business profit, investment income and net profit respectively. Generally speaking, the profit quality without corresponding net cash flow is unreliable. If the net cash flow of an enterprise is lower than the net profit for a long time, it means that the assets corresponding to the net profit higher than the net cash flow may belong to virtual assets that cannot be converted into cash flow, and the company is likely to whitewash the statements. In addition, it is necessary to identify and correct the mistakes, and beware of the fishy eye. The relevant departments should strengthen the supervision of deliberately confusing accounting fraud and accounting errors, strengthen the supervision of frequent major accounting errors, and effectively protect investors from accounting errors and accounting fraud. Four. Conclusion In a word, users of financial report information should identify and prevent financial report fraud and whitewashing behavior of listed companies in many ways, and reduce the space for all kinds of whitewashing tricks through the continuous improvement of accounting standards and related norms. It is necessary to reform the existing regulations on listing, allotment and suspension of trading, establish a multi-parameter control system including monetary indicators and physical indicators, financial data and production and operation data, comprehensively measure and measure the company's financial status and operating performance, and fairly, justly and openly confirm its listing qualification and allotment qualification. What attracts the attention of the world is that the new accounting standards for business enterprises have been first implemented in listed companies since June 2007 at 65438+ 10/. According to the new accounting standards for business enterprises and its application guidelines, the performance of more than 700 listed companies has undergone major changes. Although these changes are due to the changes of accounting standards, it is undeniable that some listed companies also use this process to manipulate profits in the process of convergence of old and new accounting standards. Therefore, three measures should be taken to curb the manipulation of profits by listed companies: first, strictly implement the non-recurring profit and loss standards; Second, when the financial indicators have undergone major changes, the accounting reasons should be disclosed; Third, listed companies should fully explain the rationality of their chosen accounting policies. It should also be noted that, as mentioned in the second point of this paper, the new accounting standards reduce the room for listed companies to manipulate profits in terms of inventory valuation and asset impairment preparation, but at the same time, it must be noted that the new accounting standards fully introduce the fair value attribute, giving companies greater autonomy in accounting policy adjustment, while the standards related to debt restructuring, non-monetary transactions, intangible assets development costs and capitalization of borrowing costs expand the room for listed companies to manipulate profits. Some companies may still continue or update their methods of manipulating profits and whitewashing statements under the new standards, so it is still a long way to go to identify and prevent financial reporting fraud, which needs people's continued attention, analysis and containment.