China's Listed Companies Financial Reporting Fraud Identification

With the problem of fraudulent financial reporting becoming more and more serious among the listed companies of PRC, and thus economic consequence incurred, investors, creditors, government and institutions related have already taken the fraud into great consideration. Mainly from the investors' most realistic and practical point of view, this thesis focuses on how to detect fraudulent financial reporting. It's no doubt that this study is helpful to CPAs and regulation constitutors as well.Above all, this thesis, sampling 48 listed companies discovered fraud engagements, investigates the current status of fraudulent financial reporting from different categories. Then analyzes and synthesizes those possible fraud signs and characteristics that fraud engagements may have. On the basis of above analysis and synthesis, the thesis continues to choose 16 variables to engage in the following empirical analysis. The empirical analysis is divided into two steps. First, practice mean test and median test on 16 variables between the fraud and nonfraud samples. The results suggest fraud companies have higher debt ratio and proportion of other receivable to current assets, slower short-term liquidity, have lower ratio of days' sales in receivables, adjusted operational cash flow per share and smaller equity's centralization extent than nonfraud companies have. Beside non-fraud companies, fraud companies are easier to receive non-standard unqualified auditing opinion. The second step is to develop and test a logistic regression model that estimates the likelihood of overstated assets or (and) earnings in financial reporting, conditioned on the presence or absence of several variables. The significant factors included in the final model are adjusted operational cash flow per share and accounts receivable in sales.