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Wanfushengke Financial Fraud Case Analysis Papers 1 I. Background Introduction
Wanfushengke Co., Ltd. (referred to as "Wanfushengke" for short) is an agricultural product processing enterprise in Changde City, Hunan Province, which is mainly engaged in the research, development, production and sales of rice deep processing products. It was listed on the Growth Enterprise Market on September 27th, 201. On September 20 12 14, the company announced that it was investigated by Hunan Supervision Bureau of CSRC for allegedly violating relevant securities laws and regulations. On September 18, Wanfushengke announced that the CSRC had decided to initiate an investigation on the company, and its shares were suspended from the next day. 1On October 25th, Wanfushengke issued the Announcement on Supplement of Important Information Disclosure and Correction of 20 12 Interim Report (hereinafter referred to as Supplementary Correction Announcement). It is admitted that in the semi-annual report of 20 12, it inflated its operating income188 million yuan, inflated its operating cost146 million yuan and inflated its net profit by 40.23.160,000 yuan. Furthermore, the company's total profit in the first half of 20 12 changed from profit of 2874.0 1 10,000 yuan to loss of1173,700 yuan, which decreased by 138.88%. In addition, the company's production suspension in the first half of the year has not been disclosed. On March 2, 20 13, Wanfushengke issued a self-inspection announcement, admitting financial fraud. At this point, Wanfushengke became the first stock of GEM fraud.
Second, analysis of fraudulent means
Generally speaking, the result of enterprise financial fraud is the inflated operating income and profit. According to the cross-checking relationship of the three financial statements in accounting, the increase of operating income and profit in the income statement is reflected in the balance sheet, which is the increase of assets. According to Wanfushengke's announcement, its specific fraudulent means include inflating accounts receivable, inflating construction in progress and inflating prepayments.
(A) inflated operating income
Wanfushengke's main business projects are selling rice, maltose and other agricultural and sideline products. Forging the actual sales revenue of most products is more than four or five times the normal selling price, so the forged sales revenue is more than 100 times the real sales revenue, and even some products have no actual sales, thus fabricating the existence of sales behavior out of thin air. The actual operating income of syrup is 203 1.74 million yuan, while the false report indicates that the operating income is12226.120,000 yuan, which is inflated by10/943,800 yuan; The business income of maltodextrin is 0 yuan, and the false report is11238,900 yuan, which is inflated by11238,900 yuan; The actual operating income of the product was 8.231.44 million yuan, and the false report was 269.7602 million yuan, which was inflated by187.4458 million yuan.
A few days ago, Wanfushengke released its 20 12 annual report, and the company lost 34 1 10,000 yuan last year. What is particularly embarrassing is that Wanfushengke achieved a revenue of 296 million yuan in the whole year, an increase of 8.39% year-on-year, despite the large-scale suspension of production lines in the first half of last year and the fraud crisis in the second half. "In the case of fraud, sales were greatly affected, and Wanfushengke also achieved a revenue of 2.1400 million yuan in the second half of last year, which makes people doubt the authenticity of its performance." Due to the fraud of Wanfushengke, the upstream and downstream of the industrial chain have changed: the upstream suppliers took the opportunity to raise prices, which greatly increased the company's operating costs; Downstream customers have reduced the number of products purchased by Wanfushengke, or asked the company to supply at a reduced price, and the sales volume of the company's products has dropped significantly.
In addition, the top five accounts receivable before correction did not appear again after correction, and the total amount of the top five accounts receivable after correction reached 71727,800 yuan, which was 44123,700 yuan more than the actual situation of 27,604,200 yuan. It shows that there is serious fraud in accounts receivable. According to the investigation, Wanfushengke disclosed in the sales contract that the two contracts signed with Huayuan Grain and Oil Business Department and the three-point contract signed with Silly Cattle Food Factory did not exist. Huang Deyi, the owner of Yide Grain and Oil Trading Bank, is related to the controlling shareholder of Wanfushengke, which shows that the company has forged sales contracts and fictitious sales business.
(B) inflated advance payment
Accounts payable and prepayments include not only project funds, but also funds generated from daily operations. However, Wanfushengke's accounts payable are very small, only 7.63 million yuan at the end of the first half of 20 12, which can be ignored. As for prepayments, except for the end of 20 1 1, the amount has not been much. At the end of 201/kloc-0, the prepayments of Wanfushengke increased by 449.44% compared with the end of last year. The company's explanation is, "The main reason is that the investment projects raised by the company have been fully started, and the prepayments for equipment have been increased. The question is, since the advance payment should be reduced at the end of the first half of the year, why did the advance payment on the statement increase a lot? Some people explain that a lot of purchase money is paid in advance in daily business activities. However, from the historical data, Wanfushengke's daily business activities can't produce too many prepayments, and from the fact that the prepayments are also not high at the end of the first half of 20 1 1, there are no seasonal factors that lead to the sharp increase of prepayments. As a matter of fact, according to the prospectus, the prepaid broker's (raw materials) purchase amount at the end of the first half of 201year was only 9.55 million yuan.
(C) inflated income and profits
Through related party transactions, fictitious sales by related parties, and sales pricing differences, the purpose of transferring profits or inflating profits is achieved. In the financial fraud case of Wanfushengke, there was obvious fraud in related party transactions. According to the report, Hunan Silly Cow Food Factory and Huaihua Xiaoya Food contributed about13 million yuan, but in the revised report, these two companies have disappeared from the top five customer lists: Hunan Qidong Jiamei Food and Tianjin Zhongyi Candy Company contributed1415.6/kloc-0 respectively.
Wanfushengke has set up a large number of virtual supplier accounts outside. The owners of these accounts are some real grain brokers, but they are actually controlled by Wanfushengke. Transfer self-owned funds into these accounts in the form of advance payment, and then withdraw cash from them or transfer them back in other ways, which constitutes sales receipts, resulting in an increase in sales scale, thus inflating operating profits.
Wanfushengke cooperated with a series of fake processes, such as private engraving of customers' fake official seals, fabrication of fake sales contracts, false sales invoices, preparation of bank documents, fake outbound orders, etc., which made the inflated sales revenue look reasonable, and even went to the tax department to pay taxes on the fake income.
Inflated profits and income need to correspond to "assets". Wanfushengke chose inflated "construction in progress" and "prepaid account" projects in the process of fraud, and its fund-raising construction projects are still under construction, reducing the risk of exposure. As for prepaid account, whether it actually happened or not remains to be verified, perhaps it actually posted the funds and turned them back.
Third, the signal analysis of financial fraud in Wanfushengke
In the semi-annual report, the total operating income of the enterprise reached 23.22 million yuan, an increase of 16.23% over the same period of last year, while the operating profit and total profit were only 25.54 million yuan and 28.74 million yuan, respectively, a decrease of-15.34% and-16% over the same period of last year. In the annual report of 20 1 1 year, the total operating income of the enterprise increased by 27.60%, the operating profit increased by 10.62%, and the total profit increased by 9. 1 1%. In the same year, the fluctuation of operating profit and total profit is very large, which is doubtful.
There are a large number of prepayments in enterprises, all of which are "prepayments for projects and equipment, and the projects are still under construction", while the corresponding customers are individuals and cannot be verified.
The amount of projects under construction has increased a lot compared with 20 1 1 at the end of the year, but the degree of completion within half a year is very low. The renovation project of heating workshop is only 50% completed, and the sewage treatment project is only 2% completed. In addition, judging from the construction in progress in June of 20 1 1 year, there is no sewage treatment project. Then, the authenticity of this project in the semi-annual report is very doubtful. In the starch sugar expansion project, the semi-annual report of 20 12 compared with the annual report of 20 1 1 2.5 times increased the investment, but the progress of the project was reduced from 90% to 30%, while the annual report of 20 12 did not mention the starch sugar expansion at all.
Fourth, financial fraud enlightenment
Financial fraud cases occur frequently and have to be paid attention to. More importantly, financial fraud is not instantaneous, and long-term strategic planning is bound to have clues to follow. We must reflect on how to make full use of the public information and risk-oriented audit model of listed companies to find financial fraud of listed companies as soon as possible. In the case of Wanfushengke, a large number of bank vouchers were forged. It is necessary that the problems were not exposed before and the relevant vouchers were not strictly examined. Therefore, the audit should pay attention to the audit of the original documents of related enterprises. Wanfushengke belongs to a high-tech industry, and it is also a local enterprise with political achievements. Its industry background, listing procedures, financial support and technology research and development are all key' audit breakthroughs'. Perhaps it is necessary to strengthen field visits to obtain direct evidence. For sales-oriented companies, their contact with customers is also quite close. Therefore, through field visits to investigate the authenticity of its various businesses, we can further prevent and discover fraud.
References:
[1] economic information simulcast. Investigation on the first stock of fraud in Growth Enterprise Market [Z]. Securities Market Weekly, 20 12, (43): 8-9.
[2] Cui Xiaoli, Lei Wu. Wanfushengke Financial Fraud Case Analysis and Enlightenment [J]. modern business trade industry, 20 13, (15)
[3] Ning Ping. Wanfushengke Financial Fraud Case Analysis [J]. Friends of Accounting, 20 14, (25)
[4] Sun Xudong. Wanfushengke prepayment fraud [J]. Securities Market Weekly, 20 12, (43): 48-49
[5] Fu Qiang, Liu Xiulan. The performance and influence of financial information distortion of listed companies in China [J]. Journal of Southwest University for Nationalities (Humanities and Social Sciences Edition), 20 12, (4):122-126.
Wanfushengke Financial Fraud Case Analysis Paper 2 Abstract "The First Stock of Fraud on Growth Enterprise Market"-Wanfushengke Financial Fraud Case once again aroused the concern of investors about the information quality of financial reports, and also seriously questioned the credibility of intermediaries such as CSRC and accounting firms. According to the information disclosed at present, based on the triangle theory of financial fraud, this paper analyzes the causes of financial fraud in Wanfushengke, and puts forward some suggestions and thoughts to avoid the recurrence of this scandal.
Keywords Wanfushengke; Financial fraud; Triangle theory
I. Brief introduction of the case
Wanfushengke (Hunan) Agricultural Development Co., Ltd. (hereinafter referred to as "Wanfushengke") was formerly known as Xianglu Wanfu Co., Ltd. in Taoyuan County, Hunan Province (hereinafter referred to as "Taoyuan Xianglu Wanfu"). It was established on May 8, 2003 with a registered capital of RMB 3 million, and the registered capital increased to RMB 20 million on April 1 2005. Processing and selling rice and feed; Production and sales of high maltose syrup, maltodextrin, starch, starch sugar, candy, biscuits, soy milk powder; Production and sales of rice husk activated carbon, sodium silicate, oil, animal husbandry and processing. On October 7th, 2009/kloc-0, Xianglu Wanfu was changed into Wanfushengke (Hunan) Agricultural Development Co., Ltd., and it was listed on the Growth Enterprise Market on September 27th, 20/kloc-0, with the short name of Wanfushengke and the stock code "300268".
Wanfushengke pioneered the circular economy production mode of rice deep processing and efficient comprehensive utilization of by-products with rice starch sugar and rice protein as the core products in China, and has become one of the enterprises with the highest level of circular economy and comprehensive utilization efficiency of by-products and the longest industrial chain. As a new and high-tech industry, the development of this industry plays a positive role in raising farmers' income, promoting the upgrading of agricultural products processing industry and promoting the development of food industry. Therefore, it is supported by various policies and its future development should be bright.
However, Wanfushengke, which has just been listed, has fallen into the "financial fraud door". In August of 20 12, Hunan Securities Regulatory Bureau found clues during the routine inspection of Wanfushengke, and the abnormal behavior of the company's chief financial officer attracted the attention of the Securities Regulatory Bureau. After investigation, the company inflated its operating income165 million yuan and inflated its operating profit by 34.35 million yuan in the semi-annual report of 20 12. Wanfushengke announced on March 2, 200013 that the company's self-inspection found that there were false records in the financial data of the periodic report from 2008 to 20 1 1 year: the accumulated inflated income from 2008 to 201/year was about 740 million yuan, and the inflated operating profit/. According to Wanfushengke's prospectus and 20 1 1 annual report, the company's total net profit in four years is 1.8 1 billion yuan. However, the net profit of1.60 million yuan is fictitious. In fact, the total net profit in four years is only about 20 million yuan.
Wanfushengke, the "first fraudulent stock on the Growth Enterprise Market", has been publicly condemned by Shenzhen Stock Exchange twice, and its shares have been suspended for many times. Relevant persons involved have been tried and punished according to law. Intermediaries that "escort" its listing have also been severely punished by law accordingly. For example, Zhonglei Certified Public Accountants has been confiscated of its business income due to false records in its IPO audit report and 20 1 1 annual report, and has been fined twice, and its securities service license has been revoked.
The "Wanfushengke fraud case" that shocked the stock market has once again aroused investors' and regulators' concern about the financial quality of listed companies. At the same time, the outside world has increasingly questioned the credibility of audit reports issued by intermediaries.
Second, Wanfushengke financial fraud analysis
By exploring the phenomenon of financial fraud in China and classical financial fraud theories, such as iceberg theory, GONE fraud theory, risk factor theory and triangle theory, this paper holds that the triangular theory of financial fraud can explain the reasons of enterprise fraud under the background of special system in China more thoroughly.
(1) Pressure
Different from the west, the main motive of financial report fraud in China is to cope with the special control policies of the capital market, such as the policy of issuing and listing, the policy of issuing additional shares, the policy of special treatment and the policy of suspending transactions. In order to achieve "glorious" listing and avoid special treatment, suspension or termination of listing, enterprises often adopt various methods to whitewash financial data.
1. In order to win the "listing" competition
Growth enterprise market provides a good way for small and medium-sized enterprises to raise funds, and can make full use of private capital, which is conducive to cultivating the growth of high-tech enterprises. As of 20 121February 3 1 day, there are nearly 355 companies listed on the growth enterprise market in China. According to the Interim Measures for the Administration of Initial Public Offerings on the Growth Enterprise Market, the company's listing on the Growth Enterprise Market needs to meet the following requirements: it has been making profits continuously in the last two years, and its accumulated net profit in the last two years is not less than10 million yuan, and it continues to grow; Or make a profit in the last year, and the net profit is not less than 5 million yuan, the operating income in the last year is not less than 50 million yuan, and the growth rate of operating income in the last two years is not less than 30% (the net profit is calculated based on the lower before and after deducting recurring gains and losses). Wanfushengke inflated its sales revenue by about120 million yuan,150 million yuan and190 million yuan respectively from 2008 to 20 10, and inflated its operating profit by about 285/. After adjustment, the operating income from 2008 to 20 10 was about 108.24 million yuan,177.65 million yuan and 243.59 million yuan, and the operating profit was about 4/kloc-0.40 million yuan, 3.43 million yuan and 7.53 million yuan. The listing qualification indicators are often relatively higher in actual implementation, and such "real" performance may be difficult to meet the qualifications for listing on the Growth Enterprise Market, let alone stand out from the crowd in the long queue of IPOs. It is reported that Wanfushengke did not intend to go public at first, but in order to promote local economic development, improve economic business, enhance competitiveness, and vigorously promote the listing of local enterprises, the local government and other relevant departments have repeatedly done ideological work on Wanfushengke and persuaded it to go public. In this way, under the strong temptation of the capital market and the heavy pressure exerted by government departments, Wanfushengke began an absurd fraudulent journey to defraud the listing qualification.
Step 2 avoid delisting
If a listed company loses money for three consecutive years and fails to eliminate it within the time limit, it will terminate its listing. In fact, before the formal delisting, these companies began to be subject to some special controls. For example, once a listed company loses money for two consecutive years or its net assets per share are lower than the par value of its shares, the exchange will implement "special treatment" (ST) for its shares. In 20 1 1 year, Wanfushengke's fictitious operating income was 280 million yuan, and its inflated operating profit was 654 1.36 million yuan, and its inflated net profit attributable to shareholders of listed companies was 59126,900 yuan, accounting for 201/kloc-respectively. After adjusting the above inflated data, the operating income, operating profit and net profit attributable to shareholders of listed companies in 20 1 1 year were 273 million yuan, -630.5 1 ten thousand yuan and1/4.1respectively. In 20 12, the operating income was 296 million yuan, the operating profit was-7,365,800 yuan, and the net profit attributable to shareholders of listed companies was -34 1.6 1 10,000 yuan. It can be seen that Wanfushengke will face "ST" if it does not "build" its economic performance by means of false transactions.
(2) Opportunities
1. Unbalanced company internal control system
According to Wanfushengke's prospectus, the board of directors of the company has an audit committee, which is mainly responsible for: auditing and supervising the company's financial revenue and expenditure plan, the implementation of investment and expense budget and economic benefits; Audit the legality and authenticity of the company's financial statements; Audit and supervise the company's internal control system and its control procedures. The objects of internal control of the company mainly include related party transactions, the use of raised funds, information disclosure, major business activities (such as contract agreements, sales and collection, inventory purchase and payment), etc. According to the current investigation results, Wanfushengke's fraud mainly adopts a "one-stop" fraud model, that is, virtual procurement, production and sales processes, forging purchase and sale contract documents, financial bills and other ways to achieve spectacular results of "floating all the way". At the same time, the company did not report and disclose the production suspension in the first half of 20 12 in time, thereby inflating its income. If the company has a good internal control system, and the management strictly implements the internal control system, this one-stop false sales will not happen.
2. Lack of appropriate punishment mechanism
At present, China's securities law enforcement has not yet played a real deterrent role to potential violators, and at the same time, China's current securities laws and regulations lack provisions on civil liability. Based on the statistics of administrative penalties imposed on more than 200 listed companies by China Securities Regulatory Commission from 2006 to 20 12, it is found that the main penalties imposed are warnings to the main responsible persons of listed companies and fines ranging from tens of thousands of yuan, while the fines imposed on audit firms of relevant intermediaries are even less. In this way, for illegal companies, the negative cost brought by "public condemnation" is far less than the income brought by information disclosure violations, and its impact on intermediaries is even less.
(3) Self-rationalization
In the face of pressure and opportunities, there is one last element to truly form enterprise fraud-excuse, that is, the "rationalization" of fraud. After the fraud case surfaced, Gong Yongfu, the company's chairman, revealed that the listing of Wanfushengke was mainly promoted by the government, and today's situation is not unrelated to the "excessive" promotion of local governments. "Government-driven" may be part of the factors that promote Wanfushengke's fraud, but it looks more like an excuse for its own fraud.
Iii. Enlightenment and suggestions
Fraudulent issuance, financial fraud and other acts seriously damage the rights and interests of investors, which is a cancer in the capital market. Wanfushengke's fraud case not only dealt a heavy blow to the confidence of small and medium-sized investors in the capital market, but also revealed that there were still problems in China's listed companies' IPO audit stage, such as securities regulatory bureaus and intermediaries. In this way, this paper puts forward some suggestions:
1. Establish a market-oriented regulatory concept.
Regulators should continue to promote the market-oriented reform of the listing and issuance policy, gradually change the quasi-market-oriented approval system into a fully market-oriented registration system, improve the information disclosure mechanism, and provide investors with sufficient and true information for independent judgment and decision-making, while regulators should ensure that the financial information provided by securities issuance or traded companies is true and complete. At the same time, it is necessary to weaken the influence of external force to promote the listing of enterprises, not to package the listing of enterprises in order to achieve certain economic indicators, but to ensure that the listing of companies is market-oriented rather than policy-oriented. Imagine that Wanfushengke, which is not yet qualified for listing, will not be forced to list without the strong promotion of the government and the Financial Office and the "green light" release from institutions such as the CSRC and sponsors.
2. Improve the legal system and increase penalties for financial fraud.
Revise and improve the existing rules, further clarify the responsibilities of issuers and sponsors, accountants, lawyers and relevant market participants, and refine the accountability mechanism and penalties for violations. Strengthen the supervision and inspection of the practices of sponsors, underwriting institutions, accountants, law firms and other related intermediaries, and find that due diligence is not in place, information disclosure is not in compliance, financial fraud and other acts, and will be punished promptly and severely according to regulations, and increase the crackdown and punishment on financial fraud in listed IPOs, so as to establish legal authority and deter companies with fraudulent motives. At the same time of administrative accountability and punishment, we should establish a perfect mechanism to protect the rights and interests of investors and actively promote the implementation of the civil compensation mechanism.
3. Strengthen internal control of enterprises and enhance professional quality training.
Put forward clear requirements for internal control evaluation in relevant data laws and regulations, and gradually establish a unified and scientific internal control evaluation standard for financial reporting. Clearly define the legal responsibility of the company's management for the internal control of financial reporting, and strengthen the supervision and punishment measures for the management. At the same time, enhance the professional level and moral quality of accounting personnel, and conduct regular training, assessment and supervision within the enterprise; According to Gong Yongfu, the chairman of Wanfushengke, he didn't know that the degree of fraud was so serious, and the former financial director Qin Xuejun was instructed to prepare false accounts. As for why the so-called high-ranking people didn't know, if they knew the seriousness of this move, they wouldn't agree to falsify profits so boldly. It can be seen that both financial personnel and functional leaders should master good financial knowledge.
4. Gradually establish a perfect delisting system, and strictly guarantee the quality and vitality of listed companies.
For those companies that are pseudo-high-tech or lack scientific management, we should get rid of them as soon as possible, give full play to the market theory, expand supply, make the so-called "shell" resources lose the market, and create conditions for the market to play the role of survival of the fittest.
References:
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About the author:
Yu Xinli (1988―), female, from Shangzhi, Heilongjiang, is a graduate student of Beijing Technology and Business University.
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