Research On Financial Fraud And Audit Risk Of Daily Chemical Enterprises

With the rapid development of China’s economy,a large number of enterprises have sprung up like mushrooms after a rain.However,behind this prosperous scene,there are many illegal activities hidden.This mercenary financial fraud behavior seriously damages the rights and interests of investors,especially small and medium-sized shareholders,and also seriously disrupts the order of the financial market.Establishing a healthy and transparent capital market is not only the call of investors,but also the fundamental environment for the vigorous development of listed companies in China.The problem of financial fraud in listed companies in China has long existed,especially in the daily chemical industry,where the proportion of financial fraud is even higher.Therefore,it is necessary to conduct research on the identification of financial fraud in daily chemical enterprises,including the exploration of their fraudulent methods and motives.It is very important to further analyze the Audit risk brought by financial fraud of daily chemical enterprises from the perspective of "economic police" auditors,including the identification and assessment of major misstatement risk,and the research on the countermeasures taken for the risk.The research content of this article is briefly as follows: The first part is the research background,mainly starting from the development of daily chemical products and the market environment of the daily chemical industry;The second part is literature review and theoretical research.The literature mainly studies financial fraud and Audit risk.The theoretical basis mainly includes principal-agent theory,risk oriented audit theory and fraud risk factor theory;The third part is an analysis of the daily chemical industry,mainly about the development overview of daily chemical enterprises and the analysis of the current situation of financial fraud;The fourth part is the case analysis of Guangzhou Lonkey,which is the research case of this paper,connecting financial fraud and Audit risk;The fifth part is the analysis of Audit risk of Guangzhou Lonkey,mainly from two aspects: major misstatement risk and inspection risk;The sixth part is the Audit risk coping strategies of daily chemical enterprises,mainly from the perspective of firms and auditors,government and enterprises.The final part is the research conclusion.Research has found that,firstly,the characteristics of financial fraud in the daily chemical industry include:(1)long time span of illegal activities;(2)Frequent violations of laws and regulations;(3)There are various methods of financial fraud.Secondly,the main factors contributing to financial fraud in the daily chemical industry are high competitive pressure and low fraud costs.Next,we will introduce a specific classic case of a company-Guangzhou Lonkey,which involved a total of31.9 billion yuan in financial fraud,to conduct an in-depth analysis of Guangzhou Lonkey’s fraudulent methods and motives.Analysis shows that this is a systemic financial fraud from top to bottom,and the means of financial fraud include:(1)fabricating business transactions;(2)Fictional inventory;(3)Failure to disclose related party matters as required.The fraud motivation can be analyzed from five aspects of the fraud risk factor theory.Continue to study the impact of Guangzhou Lonkey’s financial fraud on Audit risk,introduce the Audit risk model of modern risk oriented audit theory,and find that it has significant misstatement risks in terms of strategy,business environment,inventory,income,etc.According to the identified major misstatement risks,risk response measures shall be taken: strictly implement audit procedure,maintain the independence of auditors and improve the professional quality of auditors.Through a series of studies on Guangzhou Lonkey and daily chemical enterprises,this article concludes that:(1)auditors should make reasonable use of comprehensive knowledge and professional competence,starting from sales revenue and profit,abnormal transactions,inventory turnover rate,and related party transactions,to analyze and identify their fraudulent practices;(2)The theory of fraud risk factor can be used to analyze the causes of fraud events,and fully tap and analyze the deep factors of financial fraud in Guangzhou Lonkey;(3)By understanding the market environment,including the development history,status quo and trend of large industries,market segments and the industry,and at the same time finding common ground,similarities and differences,analyzing the possible impact of macro conditions on the daily chemical industry,analyzing the impact of financial data and indicators and specific events on enterprises,and using appropriate audit procedure to assess the risk of material misstatement.(4)Through the continuous education and training of auditors,improve the professional ability and independence of certified public accountants,strictly carry out legal and reasonable risk response procedures,make reasonable use of control tests and substantive tests,strengthen the vertical and horizontal comparative analysis of enterprise financial data and indicators,and use appropriate audit procedure to control inspection risks to reduce Audit risk to an acceptable level.