The Factors Of Fraudulent Financial Statements

It is the fraudulent financial statements of South Sea that cause stock company had been forbidden for 100 years, and Britain' s economy come to halt at 18 century; It is the prevailing fraudulent financial statements that cause NY exchange' s crash in 20' s and 30' s at 20 century. Some famous companies such as Enron, Worldcom, Xerox fraud financial statements in recent years, which greatly shake the world stock market. And in China, Many famous listed companies also fraud financial statements during the last decade, which bring the unprecedented credit crisis in stock market. The credit foundation of stock market and the principle of open, justice, fair are challenged.Western researches on fraudulent financial statements are very abundant, These researches relate to fraud theory, the motivation of fraud financial statements, the red flags, the governance of fraudulent financial statements and so on. China researches on fraudulent financial statements can draw useful lessons from western researches. Although the benefit drive is the same essence of china and foreign fraudulent financial statements, western specific social, economic, and law backgrounds decide that western researches can' t solve the fraudulent financial statements of Chinese list company. In china, some researchers have made much progress in falsity of accounting information, financial statement make-ups and earning management, but few researchers has conduct systematic research on fraudulent financial statement.The author applies the "ABC" theory in psychology and Professor Simon' s process rationality standpoint of bounded rationality theory to the process research on the fraudulent financial statements of Chinese list company. The author points out that, we should discuss the produce of the fraudulent financial statements from three aspects: the inducement (stock financing drove by benefit), the basic factor (financial condition of the list company), the crucial factor (institution and professional ethics).This paper deeply analyzes the benefit of people who takes part in the fraud of financial statements, and from the point of statistics this paper analyzes the fraudulent financial statements of the listed companies that were punished by CSRC from the foundation of Chinese stock market to May this year. Then the author points out: the stock financing drove by benefit is the primary inducement of producing the fraudulent financial statements. The big defilement of the State-owned enterprises, the marketable environment in transition economy and the financing institution during the early stock market and so on are the impersonal factors that the listed company want to get the qualification of financing by all means as possible as they can.And next, this paper compares the debt repayment ability, earning power, liquidity, capital turnover between the forty fraudulent listed companies and the unfraudulent listed company represented by the average and median of the industiy on the base of T-test and Mann-Whitney test by means of recovering the fraudulent financial statements. So a point of this paper is proved: the bad financial condition is the basic factor producing the fraudulent financial statements.Usually, the people who haven' t good code of conduct are likely to commit a crime. Then the institution and professional ethics are the two ways of inspiriting and restricting the behavior, so the author holds that: the institution and professional ethics are the decisive factor producing the fraudulent financial statements.Through the above analysis, on the governance of the fraudulent financial statements, we should try to establish a framework in which first, people needn' t take a risk to fraud; second, people will unlike to fraud because of the self-reproach; third, people dare not fraud when they are up against the severe punishment; fourth, people can not fraud under the strict institutions.