Analysis On Financial Fraud In Listed Companies

With the development of economic globalization, it is of great significance for investors,creditors, business operators and government regulatory authorities to grasp the real financialreports and related financial information to effectively exercise the functions of investment,operation, decision-making and supervision. However, the behavior of financial fraud in listedcompanies is prevalent on a global scale, resulting that financial information users can not getthe real operating conditions and making it difficult to make scientific and rational economicdecision or right policies, therefore, increasingly attentions have been paid to the financialfraud’s characteristics, methods, identification and control. In fact, in recent years, variousstudies on financial fraud indeed provide some reference basis for people to recognize theissue of financial fraud, identify the behavior of financial fraud and sum up the means offinancial fraud, however, the related theoretical research has not yet formed a relativelymature system, lacking systematical identification methods and the empirical research is stillin the exploratory stage, especially the methods which scholars trying to build models toassess the risk probability of financial fraud behavior are not mature, the accuracy of differentmodels by different samples to identify financial fraud is not uniform, and the selection ofindicators are quite different. Hence, is there a widely used method to identify enterprise’sfinancial fraud? Is it appropriate to use models to identify the behavior of financial fraud?What is the significance? In addition, many financial indicators which can identify thecharacteristics of financial fraud are under the old accounting standards, and the newenterprise accounting standards have been implemented in2007, so are there any changes inthese indicator in the new standards? These issues are worthy further study.Based on the analysis of the motivation the behavior of financial fraud, according to alarge number of domestic and foreign financial fraud behavior cases, this paper sums upenterprise financial fraud normal ways in this day and age, and combined with our countries’auditing experience, summarizes what kinds of auditing methods should be used when facingdifferent ways of behaviors of financial fraud. In addition to this, this paper sums up a set of widely used financial fraud behavior recognition method. This paper selects43differentsectors of the financial fraud A-share listed companies between2008and2011after theimplementation of the new version of the Enterprise Accounting Standards as fraud samples,and uses non-fraud companies from the same year, the same industry, with total assets closestto the number as control samples. This paper chooses27financial indicators as independentvariables, using logistic regression method to create a new financial fraud behaviorrecognition model, and filter out the characteristics of indicators to help identify the behaviorof financial fraud. On this basis, this paper also analyses the model’s benefits and drawbacks,in order to explain the disparity of the accuracy of financial fraud recognition when usingdifferent models. Finally, based on fraud triangle theory, this paper gives some suggestions onhow to deal with financial fraud of China’s listed companies.It is shown that net profit ratio of total assets and net asset growth ratio can be used asindicators to identify the behavior of financial fraud. The comprehensive recognition accuracyrate of established recognition model to identify the behavior of financial fraud reaches69percents. Due to the inherent weaknesses of the model identification method, includingsample selection defects, data reliability defects, abnormal indicators rationalization, etc., it isnot suitable to determine whether listed companies have financial fraud behaviors or calculatethe probability of occurrence of financial fraud behaviors by the model. The significance ofthe model is limited to filter out the significant financial indicators which are helpful foridentifying the financial fraud behaviors.