Case Study On Financial Fraud Of H&R Century Pictures Co.,Ltd Backdoor Listing

Since the reform and opening-up of china,China’s capital market develops rapidly,many enterprises have made big profits and achieved rapid development,but the increasingly prosperity of the capital market has also brought the problem of financial fraud.In 2012,China suspended the listing of IPO,and the capital market started a boom in backdoor listing.In 2014,China resumed IPO listing,but backdoor listing is still popular.In September 2016,China Securities Regulatory Commission revised the Management Measures on Material Assets Reorganization of Listed Companies.H&R company was one of the few enterprises that successfully went public through backdoor listing after the new regulation was issued,however it was found to have engaged in financial fraud in backdoor listing later.Therefore,this paper takes H&R company’s backdoor listing financial fraud as a case study,which has a lot of practical significance.From the perspective of theoretical significance,this paper is helpful to enrich the literature of financial fraud in backdoor listing,and also can provide some reference for the related research of later scholars.From the perspective of practical significance,first of all,through the analysis of the financial fraud means of H&R company,investors can better identify the common means of financial fraud to protect the their own interests.Secondly,the financial fraud of H&R company in the backdoor listing has brought adverse effects on the company itself and the capital market.,so this paper can provide the regulators with some ideas to improve the system and regulations of supervision;recommend some suggestions for the companies to perfect the internal control;as well as give warnings to enterprises proposed to start a backdoor listing.This paper summarizes the relevant theories by consulting and combing the related literature and policy documents of backdoor listing and financial fraud,and thus forming the theoretical basis of this paper.In the case study part,based on the in-depth understanding of the basic situation of H&R company and the case’s real situation,this paper first analyzes the reasons for the backdoor listing of H&R company,then explores the causes of financial fraud of H&R company from the perspective of fraud triangle theory,and analyzes the fraud means of H&R company combined with financial data.Finally,this paper puts forward the enlightenment of H&R company case to regulators,intermediaries and other relevant parties.After analyzing the development status of H&R company,industry status and macro environment,this paper get the conclusion that the main reasons for the backdoor listing of H&R company are: self-development needs,expansion for financing method,national policies’ support to the cultural industry,and the lower cost of backdoor listing than IPO listing.This paper finds that the financial fraud means of H&R company are mostly the common fraud ways in the capital market,such as: fictitious collection of accounts receivable,advance recognition of income to increase current revenue,deferred recognition of other receivables to postpone the provision for bad debts and concealment funds occupied by related parties.Therefore,the research of this paper can help investors better identify the common financial fraud means of enterprises.Form the perspective of the fraud triangle theory,this paper explores the causes of financial fraud of H&R company in the following three aspects: pressure,opportunity and excuse.The pressure factor lies in the fact that it is the third time for H&R company to impact the capital market;the opportunity factor are reflected in the strong restructuring willingness of Stellar Megamedia and the related party relationship has been formed between H&R company and Stellar Megamedia before the merger and acquisition;the pretext of self rationalization are that H&R company ’s financial fraud has not been discovered immediately and the cost of fraud is low.Finally,this paper draws the enlightenment of H&R company case to the relevant parties: the companies that have committed financial fraud in backdoor listing should improve their internal control and do well in the follow-up remedial work;the enterprises planning to be listed in backdoor listing should learn a lesson from this case and avoid false restructuring in backdoor listing;the regulatory authorities should improve the laws,regulations and relevant procedures of restructuring,strengthen government supervision and encourage social supervision;intermediary institutions should introduce new audit methods and improve the professional competence of certified public accountants.