Study On Financial Fraud In Guangzhou Longqi Based On Fraud Triangle Theory And Game Theory

With the rapid development of China’s market economy,the securities market has become more and more prosperous,but along with it,there are many well-known enterprises caught in the storm of financial fraud.These well-known enterprises have turned a blind eye to China’s current accounting standards,manipulating profits and making huge profits by falsifying statements and disclosing irregularities.Their financial frauds can cause significant economic losses to investors,greatly reduce the credibility of the securities industry and have an extremely bad impact on the economic development of society.Therefore,it is particularly important to strengthen the prevention and governance of financial fraud in enterprises.This paper takes the Guangzhou Longqi financial fraud case as a research case and adopts the methods of literature research,case study and game analysis.Firstly,a summary review of relevant research literature at home and abroad is conducted,and the theory of financial fraud and game theory are briefly elaborated to lay a theoretical foundation for the next case study.Secondly,we briefly review the history of the financial fraud of Guangzhou Longqi,and analyse the fraudulent means of inflating operating costs,revenues and profits,converting part of the inflated prepayments into inflated inventories and disclosing related party transactions in violation of the law.Again,after understanding the overall situation of Guangzhou Longqi’s financial fraud,we analyse the motivation of Guangzhou Longqi’s financial fraud from three perspectives,namely pressure,opportunity and self-rationalisation,based on the fraud triangle theory.Finally,from the perspective of game theory,a three-party game model of the regulator,the enterprise and the intermediary is established to analyse the factors influencing the expected utility of each participant around the basic situation of the case,and to set out the expected utility function of each participant,so as to conduct game analysis.The study found that the reasons for Guangzhou Longqi’s financial fraud were mainly due to the company’s poor business performance and declining market share in recent years,which led to higher operating pressure and financial pressure,and therefore wanted to obtain more financing and investor support by beautifying its financial statements.In terms of opportunity,it is mainly due to the more serious phenomenon of insider control as a result of the failure of the company’s internal controls,coupled with the fact that external audit supervision is not as effective as it should be.In terms of self-rationalisation,it was mainly management’s desire to turn a loss into a profit in the business and avoid being delisted,thus committing financial fraud to conceal losses and earn profits.The results of the game analysis based on the three parties of enterprises,intermediary structures and regulators show that the key reason for enterprises to commit fraud is that the benefits of fraud far outweigh the costs of being penalised if they are discovered,that improving the audit quality and independence of intermediaries can effectively restrain enterprises from committing fraud,and that the effectiveness of regulation by regulators and intermediaries has a significant impact on corporate financial fraud.Based on the results of the analysis of the Guangzhou Longqi financial fraud case from the perspectives of fraud triangle theory and game theory,this paper proposes countermeasures to prevent and control fraud from three perspectives: enterprises,intermediaries and regulators respectively.From the perspective of enterprises,one of the main motives for committing financial fraud is the poor competitiveness of enterprises in the market,which leads to greater pressure on their operations,and improving their core competitiveness can effectively curb their tendency to commit financial fraud at source.Internal controls need to be strengthened by improving corporate governance mechanisms and strengthening internal audit supervision.For intermediaries,there is a need to improve the professional and ethical quality of auditors and strengthen audit risk management.From the perspective of government regulation,it is necessary to further improve the accounting information disclosure system and the system of rewards and penalties,to enhance the efficiency of regulation and to leverage on the power of social supervision to detect corporate financial malpractice in a timely manner.There are two innovative points in this paper: Firstly,there are few articles on financial fraud that are based on fraud triangle theory and game theory,but this paper analyses the causes of corporate fraud from fraud triangle theory,and then uses game theory to analyse the game relationship between enterprises,intermediaries and regulators,which makes the conclusion more rigorous and convincing.Secondly,the game analysis model of previous studies is constructed from a single perspective,while this paper constructs the game model from the perspective of three parties,which has a more comprehensive perspective and not only helps to understand the causes of financial fraud,but also provides a basis for how to take more effective regulatory measures.