Accounting

False statements can be said is the biggest fraud tactic. How to fake accounting statements, this writer did an in-depth analysis. The accounting statements whitewashing in China is quite common, medium-scale collapse of the letter, Zhuzhou colored huge loss, Joan China source events, and more recently in the founding group of banks were taken over in Hainan, Guangdong International Trust and Investment Corporation was closed, are exposed from one side of the accounting statements of whitewash serious. Accounting statements whitewashing very harmful, not only to mislead investors and creditors to enable them under the false financial information to make wrong judgments and decision-making, but also lead to the Government and other regulatory agencies, so that regulators can not be timely discovered to prevent and resolve groups and agencies of financial risk. In view of this, this article was to explore the motives of window-dressing financial statements, type, common tools and to identify, and use it as the basis on how to improve China's accounting standards in order to curb excessive corporate accounting statements whitewashing and packaging a number of proposals. Accounting statements whitewash the motivation 1. In order to assess the cosmetic results of the accounting statements Enterprises operating results, its assessment methods, generally based on financial indicators, such as the profits (or losses) project completion, the investment rate of return, output value, sales revenue,''''''''state-owned assets, asset turnover, sales margins, etc. are an important evaluation indicators of business performance. These financial indicators are related to accounting data. In addition to internal assessment, the external examinations, such as industry, rating, also based mainly on sales revenue, total assets, total profits determined. Business performance assessment, not only to enterprises involved in the evaluation of the overall operation, but also to the enterprise operation and management of plant manager performance evaluation, and its promotion, bonuses and benefits. In order to score more to business performance, corporate financial statements, there are likely to be packaged, whitewashing. Can be seen that the performance-based assessment and cosmetic accounting statements is the most common motive. 2. In order to access to credit financing and commercial credit and cosmetic accounting statements Is well known in the market, banks and other financial institutions because of the risk considerations and the need for self-protection, the general reluctance to lend to loss-making enterprises and the lack of credit business. However, capital market competition is to win the four elements (product quality, financial strength, human resources, information resources) is one. In China, enterprises are facing problems of shortage of funds situation. Therefore, in order to obtain financial institutions, funds or other credit providers of commercial credit, poor operating results, financial situation does not sound business, inevitably dressed some modifications to its accounting statements. 3. In order to issue stock and gloss over the accounting statements Is divided into first issued stock offerings (IPO) and follow-up distribution (allotment). In the IPO cases, according to the "Company Law" and other regulations, companies must be profitable for three consecutive years, and results of operations should be more prominent to the approval by the SFC. In addition, the determination of the stock issue price also related to profitability. In order to more fund-raising and shaping the image of excellent performance, enterprise reform programs in the design of stock tend to gloss over the accounting statements. In the case of the follow-up release, to comply with conditions of allotment, corporate net assets of the last three years an annual rate of return must be over 10%. Therefore, the 10% of the placement of shares of listed companies has become a "lifeline." Statistics show that in 1997, 755 listed companies, return on equity of 10% to 11% of up to 211, accounting for about 28%, can be seen that the accounting statements for the allotment and whitewash the motivation, and no less than IPO. 4. In order to reduce the tax and accounting statements whitewash Income tax is based on the accounting profit, through tax adjustments, will be the accounting profit adjusted taxable income, multiplied by the applicable tax rate arrived at. Therefore, based on tax evasion, reduce or defer tax purposes, businesses tend to whitewash the accounting statements. Of course, there are a few state-owned enterprises and listed companies, based on financing and the purpose of manipulating stock prices, sometimes even at the fictitious profits, pay more tax in order to "prove" their profitability. 5. For the purpose of accounting statements and whitewash The state-owned enterprise reform has entered a crucial stage, the CPC Central Committee and the State Council attached great importance to strive to three years time for the state-owned enterprises out of difficulties. In a sense, the state-owned business to profitability and create a good operating performance has become a political task. On the plant manager, the completion of this task may be a bright career, or may be job insecurity, or even laid off. In this political pressure, the state-owned enterprises is likely to gloss over the accounting statements. In addition, many local mayors, the Secretary of the directors from large state-owned enterprises, managers selected. In order to show their skills, reflect the performance, managers, and managers have cosmetic accounting statements motivation. Not difficult to find, some companies had had once promoted to the Mayor and the Secretary, the successor often had to spend a few years, plant manager took time to digest due to gloss over the accounting statements and left behind a heavy burden. 6. Shirking its responsibility for the accounting statements whitewash Were as follows: (1) the replacement of senior management when the outgoing audit revealed a number of general. New general manager, took office that year, as a clear responsibility or shirk their responsibilities, often bold head against Chen clean up old accounts. (2), accounting standards, the accounting system when major changes, such as "Limited accounting system" implementation may induce whitewash financial statements of listed companies, early digestion hidden losses, and will blame the new accounting standards and accounting systems; ( 3) a disaster, or senior management staff involved in the economic cases, the firm is also likely to gloss over the accounting statements. The type of window-dressing financial statements 1. Whitewash operating performance Profit maximization, this type of accounting statements whitewashing the year prior to listing, and listing the year is particularly evident. Typical methods are: early recognition of revenue, postponed the carry-over costs, losses are losses, asset restructuring, related-party transactions. Minimize the profit when companies fail to business objectives or listed companies may be a loss for three consecutive years, is facing delisting, the use of this type of accounting statements whitewashing is not surprising. A typical approach is: to defer recognition of revenue, ahead of the carry-over costs, transfer pricing. Equalization of profits, business in order to shape the image of blue-chip stocks, or to obtain a higher credit rating, often using this type of accounting statements whitewash. A typical approach is: the use of other receivables, payables, prepaid expenses, deferred assets, accrued expenses and other subjects adjusted profit, well-planned profits steady growth trend. Clean profit (also known as a huge write-off), when companies replace the legal representative, the new legal representative in order to clear or pass the buck, often using this type of accounting statements whitewash. A typical approach is: The bad debts, inventory backlogs, long-term investment losses, idle fixed assets, current assets, and to be processed pending the so-called virtual assets, fixed assets, a one-time deal with a loss. 2. Whitewash the financial situation of Overvalued assets, while foreign investment and conduct of joint-stock restructuring, companies tend to overestimate the assets in order to obtain a higher proportion of equity. A typical approach is: fabricating grounds for asset valuation, fictitious business transactions and profits. Underestimate the debt, business loans, or issue debt, in order to prove their financial risks are lower and usually underestimate the desire of debt. A typical approach is: unrecorded loans or debt hidden in associated enterprises. 3. Accounting statements whitewash whitewash the motivation decide the type of accounting statements Performance-based assessment, access to credit, capital, issue stock, and political purposes, financial statements whitewashing in general is to maximize profit, the profit the form of equalization; based on the purpose of tax and to shirk responsibility, the accounting statements whitewashing in general profit and profit minimize cleaning form. On the state-owned enterprises and listed companies, the biggest dangers of cosmetic accounting statements is to maximize profits, that is, the so-called virtual surplus real losses, conceal debt. Common means of window-dressing financial statements 1. The use of assets restructuring adjustment of profits Reorganization of assets is the enterprise in order to optimize the capital structure, adjusting the industrial structure, the purpose of completing the implementation of the strategic transfer of assets and equity exchange replacement. However, the reorganization of assets has now been widely abused, as well as initiate the reorganization of assets, people immediately think of false accounts. In recent years, some enterprises, especially in listed companies, asset reorganization is indeed widely used in cosmetic accounting statements. Is not difficult to find, many listed companies, the secret to profitability lies in the reorganization of assets. A typical approach is to: (1) through related party transactions by non-listed state-owned enterprises to high-quality assets as the poor quality of the assets of listed companies; (2) from non-listed state-owned enterprises will be a subsidiary of the higher profitability of low-cost sale to listed companies; (3) The number of idle assets of listed companies will be sold at high prices to non-listed state-owned enterprises. For example, '' '' stock company in 1997 to 69.26 million yuan of land-use rights to sell the price of 219.26 million yuan parent company, confirmed that over 15,000 million profit; the same time, owned a business as a whole property (net book value 14.54 million yuan) to 94.14 million yuan, sold to the parent company, confirmed that 79.6 million yuan in profit. These two pots of assets, reorganization of the total profit total 229.6 million yuan. Again, '' '' stock company in June 1998 the book value of its own 560 thousand U.S. dollars in Shanghai '' '' Co., Ltd. 40% of the equity price is 40 million yuan, an equity swap with associated enterprises. The stock exchange so that the company's 56 million shares of non-performing assets of 4,000 million into high-quality assets, has pushed up the shares of companies to increase their earnings more than 3,500 yuan, not only to enable the company to avoid in the first half of 1998 in the loss, but also compensate for the previous year, after a loss of 25.58 million yuan, but also a considerable portion of the remaining distributable profits. Asset restructuring of listed companies often have to turn around the magical night effect, its "secret" First, they use the time difference, as in the fiscal year draws to a close before the major asset sale, confirmed that excessive profits; First, exchange of unequal values, that is associated with transactions, listed and unlisted companies in between the parent company of the "trash-for-gold" profit-shifting. 2. The use of related-party transactions the profit adjustment Many of China's listed companies made by state-owned enterprise restructuring, in the stock issuance quota limited, listed companies are state-owned enterprises through the establishment of local restructuring of the way. Joint-stock restructuring, the listed companies and the restructuring of the former's parent company and the parent company controlled by other subsidiaries of the association between the prevalence of complex relationships and related party transactions. Gloss over the use of accounting statements related-party transactions, regulation of profits of listed companies has become bored with the "game." Regulate the use of profit related-party transactions, the main methods include: (1) fictional economic operations, artificially increase the public's business and efficiency. For example, some joint-stock restructuring of enterprises for main business revenue and main business profit of less than 70%, and by high prices for their goods sold to its associated enterprises, the use of its main business revenue and profits "reborn." (2) using significantly higher or lower than the market price approach to buying and selling activities, assets and equity exchange replacement. As previously cited case of asset reorganization. (3) Hanlaobaoshou manner entrusted with the operation or entrusted with the operation to raise the operating performance of listed companies. Such as the recent Securities and press widely reported '' '' stock company, cost of 800 million contract to operate a farm related enterprises, in less than a year for 72 million yuan of profits. (4) to fund low-interest or high interest rates took place between, adjust financial costs. If '' '' stock company of funds of 12 billion (69% of its total assets) lending to its associated enterprises. Although we are not sure of its funds lending rate is reasonable, but one thing is certain, the shares of the company's profits were mainly derived from capital transactions with affiliated enterprises interest income. (5) to receive or pay management fees, or adjust the profit-sharing common costs, such as '' '' Group in 1997 for its holding in listed companies undertook more than 4500 million of advertising costs on the grounds that the ads listed company to also contribute to to enhance the Group's corporate image. Regulate the use of related-party transactions the biggest characteristic of profits and losses may be going to turn into big profit-maker, and most of the profits of related-party transactions reflected as "other business profits", "investment income" or "non-operating income", but the listed companies the use of related-party transactions to earn a "windfall", often with inter-onset, usually does not mean that the profitability of listed companies to substantially change. Regulate the use of related-party transactions profits Another feature is the outcome of a transaction are non-profit state-owned enterprises listed on the transfer of listed companies, resulting in the loss of state assets. 3. The use of asset valuation to eliminate hidden losses Accounting system in accordance with the provisions and the precautionary principle, the enterprise's hidden losses shall be in accordance with legal procedures, to be reflected through the income statement. However, many enterprises, especially state-owned enterprises, often in joint-stock restructuring, foreign investment, leasing, mortgage, through the assets assessment, will be bad debts, slow-moving and damaged inventory, long-term investment losses, loss of fixed assets and deferred assets hidden losses recognized as assessment of impairment, offset the "capital reserve", so as to achieve gloss over the accounting statements, inflated profits. For example, a state-owned enterprise was reorganized in 1998 as a listed company, 1995, 1996 and 1997, respectively, reported net profit profit of 28.5 million yuan, 33.75 million yuan and 43.12 million yuan. The audit found that: (1) 1995, 1996 and 1997 receivables, aged more than three years, expect to cover the amount of dollars 75.63 million yuan; (2) expired deterioration of the stock, its loss is about 3,000 yuan; (3) deferred assets, including amortization of the pending write-off of overdue exchange loss of 11.5 million yuan. Considering these factors, then the company is not making profits continuously over the past three years, did not meet the listing requirements. To this end, the restructuring of enterprises to joint-stock assets assessment carried out by a "turning point", all of these hidden losses as an asset impairment evaluation, with fixed assets and the assessment of land use rights value of 186.8 million yuan phase offset, so that in the past three years as reflects the high profits, so as to achieve the successful listing purposes. 4. The use of virtual assets, adjusted profit According to international practice, assets are future economic benefits that can bring resources. Can not generate future economic benefits of the project, even if the accrual basis in line with the requirements included in the balance sheet, strictly speaking, nor is it a real sense of the assets, thus arose the concept of virtual assets. The so-called virtual assets, means the actual costs incurred or loss, but because enterprises lack the capacity to withstand the temporary hanging as prepaid expenses, deferred assets, current assets to be processed losses and loss of fixed assets and other assets to be processed subjects. Virtual Asset subjects as a "reservoir" and does not promptly recognized, less amortization expenses and losses have occurred, but also state-owned enterprises and listed companies whitewash accounting statements, virtual surplus real loss of the modus operandi. Its "legitimate" excuse to include an accrual basis, revenue and cost matching principle, the instructions of the local financial sector and so on. For example, '' '' stock company 1996 annual report of nearly 2,000 million net profit, but the company's approval in accordance with local financial sector, will have taken place in depreciation charges, management fees, tax losses, interest expense and other accumulated about 140 million yuan peg classified as "deferred assets." Considering these two factors, '' '' stock company, in fact there was a serious loss. 5. Use interest rates and capitalization of the profit adjustment Under the current system provides, for the construction in progress and long-term assets such as fixed interest charges paid in these long-term assets put into use before and could be capitalized and included in the cost of these long-term assets. Capitalization of interest out of revenue and cost of the matching principle, distinguish between capital expenditure and operating expenditure requirements. However, in practical work, there are a lot of misuse of state-owned enterprises and listed companies, capitalization of interest provisions, the deliberate adjustment of profits. Security was undoubtedly the most representative Taebaek Yu. The company will Dioxide during the construction loans and 80.64 million yuan to meet interest on the bonds, in which the project has been put into use cases, is still to be capitalized, the results are certified public accountants issued a negative opinion of the audit report, listed companies in China opened the audit report was issued a negative opinion of the first of its kind. Use interest rates and capital, the more profit-oriented regulation of the practice of secret is to use its own funds and borrowed funds is difficult to define the fact that, through the artificial demarcation of sources of funding and use of funds will be used for non-capital expenditures of interest capitalized. 6. The use of equity investment adjusted profit As China's property market is still underdeveloped, the accounting standards for equity investment is still in the go phase, there are many state-owned enterprises and listed companies use equity investment adjusted profit. In addition to asset restructuring of the machine through the use of related-party transactions will be adversely associated with equity investments in companies with sky-high price to obtain stock exchange "profiteering", there are a lot of state-owned enterprises to use the cost method and equity method of accounting statements whitewashing. A typical approach is for the profit has been invested enterprises accounted for using the equity method, but for a loss by the invested enterprise, even if the equity ratio exceeds 20%, still use cost accounting. In recent years, profits of some listed companies forced by the pressure, often in the fiscal year draws to a close, with shares of affiliated companies signed a share transfer agreement, under the equity method or through the consolidated financial statements, will be acquired into the company's full-year profits of listed companies accounting statements. Fortunately, the Ministry of Finance Accounting Division in May 1998 has issued a circular, clear that transfer of shares, the acquisition of enterprise can only be acquired before the acquisition of the profits of enterprises only as the acquisition cost of the acquisition enterprise shall not be recognized the return on investment. This provision will undoubtedly curb the use of state-owned enterprises and listed companies, equity investment adjusted profit, whitewashing accounting statements. 7. The use of other receivables and other payables adjustment of profits Under the existing accounting systems and regulations, other receivables and other payables subjects primarily used to reflect the addition to accounts receivable, advances receivable, accounts payable, accounts receivable other than amounts received in advance. Under normal circumstances, other receivables and other payables of the ending balance should not be too large. However, we found during the audit, many state-owned enterprises and listed companies and other receivables and other payables closing balance of large, often associated with accounts receivable, advances receivable, accounts payable and accounts receivable balances are not received in advance phase from top to bottom, even more than the balance of these subjects. His is why there are such anomalies, mainly because many state-owned enterprises and listed companies use these two subjects adjusted profit. In fact, the CPA profession these two subjects have been dubbed the "trash can" (because other receivables are often used to hide hidden losses) and the "treasure bowl" (because other payables are often used to conceal profit). 8. Use of the time difference (inter-annual) adjustment of profits Some listed companies after the end of the year in order to give shareholders a "satisfactory" responses, often using the time difference adjustment of profits. Traditional practice is to issue false invoices in December the following year and then reversed the grounds of substandard quality. A more sophisticated approach is to help with third-party signed the "selling out" the proceeds of the right to an agreement in advance to confirm income. For example, '' '' stock company on December 5, 1997 signed an agreement with U.S. company, at 3500 million purchase price to the United States a number of hardware and software, while the U.S. has agreed to the price of 120 million yuan to purchase the development out of the software, the contractual time for delivery in June 1998 and 9 months, in December 1998 after the quality of appraisal to be acceptance. December 25, 1997, the listed company signed an agreement with a foreign trade company, at 9600 million price "selling out" the software, while recognizing the 51 million yuan in profit. Given that the stock has yet to provide goods or services, risks and rewards have not yet transferred the proceeds to determine the above is obviously not tenable. Even if the agreement signed with the foreign trade companies set up, which 96 million yuan, it will serve as Receipts in advance, and only until June 1998 and in September in order to provide goods or services according to the progressive recognized gains. Can be seen that the listed company with foreign trade company in essence is the use of so-called "agreement" to carry out multi-year adjusted profit. Fortunately, the "income" guidelines have been issued to confirm the realization of income must meet a number of strict conditions, in large measure help to curb the use of the time difference adjustment of profits phenomenon. Identification of the accounting statements whitewash How to identify the accounting statements of whitewash to evaluate the true profitability of enterprises is a large concern of users of accounting information. The author believes that the accounting statements for the Chinese enterprises whitewash the usual means, using the following four methods will help to find that the accounting statements of whitewash. 1. Non-performing assets, excluding France Non-performing assets are talking about here, in addition to including prepaid expenses, a net loss of liquid assets to be processed, pending a net loss of fixed assets, start-up costs and long-term prepaid expenses and other virtual asset, but also may have hidden losses of assets, including items such as old accounts receivable, inventory and backlog decline in value of losses, investment losses, fixed asset losses. The use of non-performing assets, excluding France, one of total non-performing assets and net assets of comparison, if the total amount of non-performing assets close to or over the net assets, not only shows the continued viability of enterprises may have, but also may indicate that enterprises in the past few years because of artificially inflated profits The formation of "asset bubbles"; First, the current increase in the amount of non-performing assets and the increase or decrease in the total profit with the current period and profit margin increased in the comparison, if the increase in the amount of non-performing assets and the rate of increase than the increase in the amount of total profits and the rate of increase shows that the current period's income statement as the "water." 2. Related-party transactions excluding France Related-party transactions excluded from the Act refers to the associated enterprises operating income and total profits to be removed, the profitability of a particular enterprise depends on the extent to which the associated enterprises, in order to determine the profitability of the enterprise base is a solid source of profit for the stability of the . If the enterprise's operating income and profit comes mainly from associated enterprises, the accounting information users should be particularly concerned about the pricing policies related-party transactions, analyze whether the exchange of unequal values form and related transactions, the transaction took place cosmetic accounting statements. Excluding related party transactions to use an extension of the law is that the financial statements of listed companies and its parent company prepared consolidated financial statements were analyzed. If the parent company's total profits of consolidated financial statements (the profit of listed companies should be excluded from the total) was significantly less than the total profits of listed companies, it may mean that the parent company profits through related party transactions "package into" listed companies. 3. Extraordinary profits excluding France Excluding extraordinary profits law refers to other business profits, investment income, subsidy income, operating income from the total profits of enterprises removed in order to analyze and evaluate the stability of the source of corporate profits. When an enterprise asset reorganization regulate the use of profits, the profits generated through these subjects reflect, at this time, the use of extraordinary profits excluding the Identification of the accounting statements of whitewash will be particularly effective. 4. Cash flow analysis Cash flow analysis refers to the net cash generated from operating activities flows from investing activities Net cash flow, net cash flows separately with main business profits, investment income and net profit of comparative analysis to determine the profit of main business of enterprises , investment income and net profit quality. In general, there is no corresponding net cash flow of profits, the quality is not reliable. If the enterprise's net cash flow consistently lower than the net profit would have been recognized as a profit means that the assets may belong to the corresponding cash flow can not be translated into virtual assets, indicating there may be cosmetic company financial statements phenomenon. Inhibit a number of recommendations cosmetic accounting statements 1. Should require companies to fully disclose the pricing of related-party transactions and fair price differences, account settlement and payment time. Obviously lead to loss of state assets for the non-equivalent related-party transactions should also be access to state-owned assets management department for approval; for significant harm to the interests of medium and small shareholders of listed companies is not equivalent to related-party transactions should also keep a close watch for the securities department's approval. 2. Reference to international accounting practices, as soon as possible to develop criteria for non-monetary transactions, the stock exchange through asset replacement and asset restructuring to regulate behavior. By way of capital restructuring to curb corporate name to "statements of restructuring", the proposed replacement of the asset replacement and the difference between equity returns, according to a certain period of amortization. 3. To develop the accounting treatment of asset evaluation criteria for asset valuation Tiaozhang current assets for impairment accounting treatment of project evaluation (as a profit or loss, or offset against capital surplus), disposed of has assessed the changes in the value of the assets and the place project accounting treatment to be rules to prevent companies using asset valuation adjustment of profits. 4. To develop guidelines for asset recognized on the asset recognition criteria rules to prevent the companies will not comply with the asset recognition criteria (In my opinion, one of the most important criterion is the ability to generate cash flow) projects (such as virtual assets) recognized as an asset. Recognition criteria for assets already in existence before the promulgation of the virtual assets, should be required to be disclosed so that the real business of accounting information users to assess the financial position and results of operations. 5. To develop guidelines for large capitalization costs, interest payments on loans, development expenditures, capital and other large advertising expenditures to regulate behavior, so that the cost of various business-to-large consistent with the accounting policies to improve accounting information of horizontal and longitudinal comparability. 6. As soon as possible to develop "corporate merger" criteria for mergers and acquisitions and equity involved in acts of transfer of profits to confirm to regulate. 7. To develop, "Consolidated Financial Statements," guidelines for the preparation of consolidated financial statements and disclosure norms, in particular, within the fiscal year should be the acquisition or loss of control is the proportional method, or the use of the presumptive method the preparation of consolidated financial statements not clearly stated. 8. Draw on Regulatory Commission issued the "Accounting Statements Guide" developed "accounting information disclosure" guidelines for listed companies, including all enterprises, including the disclosure of accounting statements and accompanying notes to regulate in order to improve the information content of accounting statements and intelligibility.