Case Study On Financial Fraud Of Zhejiang Renzhi Co.,LTD

China's economy has been booming since the 21^st century,and meanwhile,the capital market has been thriving.Fourteen years after the establishment of the Main Board Market,the SME(Small and Medium Enterprise)Board was officially established in May 2004,having recently been the indispensable part of China's capital market.But recently,financial fraud incidents frequently exposed.Of the 522administrative penalties issued by the CSRC in 2013-2017,50 were related to financial fraud.Many well-known SME board companies such as'Green Land'and'*ST Bait'were on the list of penalties,resulting in a decline in the reputation of the companies and a loss of confidence in the market.Therefore,based on the financial fraud case of Zhejiang Renzhi Co.,LTD which listed on SME board,this paper studies the motivation,methods and preventive measures,which has important practical significance.Firstly,by using the method of literature research,this paper combs the classical theories and research results at home and abroad on the motivation,means and governance of financial fraud,so as to lay the research foundation of this paper.Taking Zhejiang Renzhi CO.,LTD financial fraud as the research object,this paper uses GONE theory to conduct a detailed analysis from four aspects of greed,opportunity,need and exposure,and draws reasonable inspiration from the above four factors.In the part of case analysis,this paper first summarizes the industry background,company profile,fraud events,fraud methods and punishment results of Zhejiang Renzhi CO.,LTD,and then uses GONE theory to analyze the fraud motivation.The first factor is greed.Shareholders and management are eager for quick success and instant benefits.Their moral and legal consciousness are weak.They hope to short-term speculative behavior,and do not disclose information such as illegal fund occupation,illegal voting and fictitious business in time,so as to create a good illusion of operation.The second is the opportunity factor.Insufficient internal corporate governance makes it difficult to balance the power of actual controlling shareholders.At the same time,the supervision function of independent directors and supervisors lacks independence,which provides opportunities for large shareholders to encroach on the interests of minority shareholders and creditors.The third is the need factor,the company has strong motivation to reverse the poor main business,capital turnover,financing difficulties and other situations,resulting in the adverse need to pursue the immediate interests through financial fraud.The fourth is the exposure factor.On the one hand,the audit institutions fail to be diligent and responsible,the audit procedures are not in place,the audit evidence is not sufficient,and Certified Public Accountants are not careful enough.On the other hand,the penalties for external supervision are not serious enough and the cost of violation is too low to match the benefits of fraud.Finally,this paper draws the following inspiration.Firstly,we should strengthen the credibility construction to curb the greed factor.We should strictly check the managements'moral and legal assessment and post-training.Managements'archives about morality and integrity should also be established,and corresponding rewards and punishments should be publicly carried out.In addition,it is necessary to create a good atmosphere of professional ethics.Secondly,we should optimize the internal governance system to curb the opportunity factor.On the one hand,we should appropriately reduce the concentration of equity.On the other hand,we should strengthen the internal supervision function of independent directors and supervisors.Thirdly,we should broaden the financing channels to curb the need factor.On the one hand,the government should increase support for financing.On the other hand,enterprises themselves could release the pressure of capital liquidity by issuing bonds,bank loans,Internet finance and so on.Fourthly,we should strengthen the management of audit institutions and the degree of supervision penalties in order to curb exposure factors.On the one hand,we should improve the independence of audit institutions,and strictly implement audit quality management.On the other hand,it is necessary to strengthen the punishment of industry supervision.We could set up the paid reporting mechanism,and combine administrative punishment with criminal responsibility to increase the cost of violation if necessary,which could have a deterrent effect on financial fraud.