Analysis Of Related-transactions Of Listed Companies In Financial Fraud

Related party transaction is a commercial activity occurred between related parties to transfer resources or obligations. It is an important part of the economic behavior of listed companies. It has played an active role in promoting the company scale, reducing the uncertainty in the transaction process, reducing transaction costs and achieving its strategic objectives in the nature of the transaction. There is also contrary to the principle of fair competition in the market, transfering funds and profits between related parties, detrimenting the interests of shareholders and so on. Because of the presence of the two sides of related party transactions, when listed companies using it to reduce transaction costs and improve operational capabilities and operational efficiency of capital to maximize profits, it is inevitable there is no damage by means of financial fraud related party transaction subject to the interests of others, and this trend is increasingly evident. Non-fair related party transactions of listed companies not only reduce competitiveness and independence, and it is also a major shareholder of listed companies emptied, an important means of abuse of minority shareholders, hinder fair competition between market players. Besides, related party transactions of financial fraud distorts the market allocation of resources function, endangers the stability and development of the securities market.Facing with increasingly serious malpractices related transactions, we must stop it. In order to better supervision of listed companies related party transactions, regulators parties of related party transactions has issued a series of laws and regulations on related party transactions of listed companies. For example, China’s corporate law, securities law, accounting law and other legal departments have been made by the appropriate rules and norms from different angles on related party transactions. But as a whole, China’s legal and regulatory regime related party transactions are still many drawbacks, particularly in terms of the rules of procedure, internal oversight and accountability system, and it is difficult to fully guarantee the safety of related party transactions. Although the constant amendments to laws and regulations and improving the information disclosure of related party transactions, the phenomenon of non-fair related transactions still occurs frequently, and financial fraud related party transaction presents a series of new issues such as more complex, invisible and so on. January 4,2011, China Accounting Society for CPA audit risk issues faced in the audit proposed CPA should focus on ten areas of concern, the related party relationships and significant related party transactions located in the fifth place, it has become the focus of China’s securities market supervision. Therefore, it is very necessary for our related party transactions of listed companies issue strict management, though we can not completely eliminate fraud occuring in related transactions, at least be able to play its due inhibition.In this paper, we use standardized methods combined with case analysis. First, understanding the basic concepts related party transactions with financial fraud is very necessary and rational economic man hypothesis, agency theory, efficient market theory, asymmetric information theory can provide a good theoretical basis for us. Secondly, there is a detailed analysis of the primary means of China’s listed companies used in financial fraud related transactions, the basic motivation and the root cause, among them, the primary means of China’s listed companies used in financial fraud related transactions include:the purchase and sale of non-fair association, trust or fiduciary operating assets, related party transactions dereference non-associated and so on. The fraud motivation mainly performances by regulating profits to achieve sustained financing, political interests, avoidance and escaping punishment from SFC sector. Reasons for related transactions and financial fraud are mainly due to the imperfect external system and external supervision, ineffective corporate governance and their own internal ethical issues. In order to elaborate more detailed and vivid, cited in the analysis of a large number of listed companies in fraud case will be explained. Then, taking Jilin Zixin Pharmaceutical for example, in the understanding of the basic background Zixin Pharmaceutical, the use of external data of related party transactions, we dig out that it used bags from buying from companies selling fraud facts, in-depth analysis of their use of association party transaction means and reasons of financial fraud, and the corresponding countermeasures and suggestions based on reasons of fraud, the fraud of related transactions for later proposed measures have a deep inspiration. Finally, according to the means, motivation, reason of fraud related transactions from previous analysis and inspiration derived from the case, we combine with the status quo of China’s listed companies associated with trading the financial fraud, propose effectively inhibit measures to the association of listed companies trading in financial fraud from both inside and outside the company.This paper is divided into five parts, on related party transactions of listed companies financial fraud issues in-depth analysis. Structured as follows:The first part is the introduction, this study focuses on reviewing of the background and significance of the problem at home and abroad, and explaining the idea of the research and the methods. The second part introduces the related party transactions and financial fraud related theories. The third part, respectively, relates to the primary means of financial fraud transactions of listed companies, the internal motivation and the root cause for a detailed description and analysis. The fourth part, combining with Zixin Pharmaceutical cases, in-depth analysis of its financial fraud issues of related party transactions. The fifth part, based on the foregoing analysis out fraud reasons, combined with China’s specific national conditions, provides constructive comments that can stop fraud occurring.