An Analysis Of The Formal Institutional Arrangements And The Informal Institutional Arrangements Affecting The Accounting Fraud

At the end of 2005, "The top ten list of finance fraud in 2005" and "the top ten list of cash fraud in 2005" were announced at the internet by the Research Centre for Finance Fraud in Shanghai National Accounting Institute. They became the hot clicks at once. It seems that the problem always remains in many people's thoughts and worries them. The deleterious effects of accounting fraud are the satire to the true of enterprise finance, disbelieve in the accounting and auditing profession, and the disappointment in security market. Then, what's wrong with these public companies? Isn't there any approach to prevent and fight accounting fraud?In fact, scholars keeps active study on the accounting frauds from the first accounting fraud case -"Nanhai Company", which happened in 1720 in England. The researches center on the motivation, identification and prevention and management on accounting fraud, etc. China is still in the primary stage of market economy. The security market is developing from a new market to a ripe market. The accounting fraud cases happened in China are different from those happened in other countries. It is definitely necessary to do fully research on the subject, considering China's situation. The research subject of this article is the accounting cheating cases of our country's public company. The article adopts standard analysis method to discuss the institutional arrangements relating to accounting fraud, with some cases analysis, and try to give some suggestions in the institutional arrangements.This article is divided into five parts:Part1: Introduce the studying background and the current researches. Discuss the importance of studying the problem. Then, I mainly introduce the main methods that I use in studying this problem.Part2: Define and explain the concepts of accounting fraud, formal institution and informal institution. Indicate that there is a close connection between the cheating cases and the institutional structure.Part 3: Analyze the influences of the current formal institutions on accounting fraud actions. The accounting standards, the corporate govemance, the inner control, the independent auditing, and the legal system on securities are discussed in detail.Part 4: Emphasize the important function of informal institution. Then analyze that China's informal institutional arrangements make impacts on accounting fraud.Part 5: In the foundation of the above, propose the macroscopical thought to solve the problem is to improve an effective institutional system. In the microcosmic aspect, give some detailed suggestions. In addition, I emphasize that obeying the institutions is as important as building them.At last, the paper summarizes the conclusion of this article.This article analyzes the accounting fraud under the institutional structure, emphasizing the whole structure, but not any single rule. And pays attention to the informal institution. In the aspect of prevention and management, based on the different characters of formal and informal institutions, I hold the opinion that we should attach importance to the enforceability of formal rules, and the informal institution's change complete as the formal rules leading effect. The article states further that we should strengthen the effective obeying and give more strict supervision and punishments.