Study On The Audit Supervise Mechanism Of IPO Of Chinese Companies

From the Dongfang Electronics, Yinguangxia company, Lantian shares, Scenery ofmountains and rivers to The Green land company, Xindadi Corporation and Wanfugraduate, at present financial fraud cases of China’s securities market occur frequently,which has caused more and more attention of the government, enterprises, andinvestors. Financial fraud of securities market, which makes the investors can not be based onreal data to make investment decisions, suffering a major loss of investment, seriously affectthe orderly operation of the macro economy and the market economy of countries, affectingthe efficiency of market operation. The supervision mechanism plays an important role in theprevention of financial fraud, which can significantly reduce the probability of corporatefinancial fraud appearing. Studying on the audit supervision mechanism of our companyabout IPO(Initial Public Offerings, IPO for short), not only to safeguard the interests ofinvestors, avoiding the market risk and the loss which cause, but also to safeguard thesecurities market being fair, just and open. It is helpful for restoring investor’s confidence inthe securities market.This paper selects Wanfu graduate’s financial fraud case to study. The GEM of Chinesesecurities market was established in2009, that meaning its own development should learnexperience and shortage from Chinese main market and Small and medium-sized plate, andmake improvements in the supervision mechanism. However, the frequent financial fraudcases in GEM prove the audit supervision mechanism of our country is not perfect, whichneed further improvement. Wanfu graduate as the first case of GEM companies Fraudulentingissuance of shares, the motivation and the method it use and the problem the auditsupervision mechanism exposed in the IPO is very representative. Through the analysisof Wanfu graduate’s financial fraud, the policy recommendations to perfect the auditsupervision mechanism putting forward in this paper is unique and constructive. For example,building the selection mechanism of auditor in the IPO of enterprises, establishing a freelancewriter mechanism and introducing of leading compensation mechanism and so on, haveimportant significance in reducing the financial fraud of the securities market of our country. Methods the paper mainly uses is the method of literature and case study. Being basedon the summary in documents of the domestic and foreign about the IPO and financialfraud, the paper uses the Control theory, the theory of information asymmetry and Signalingtheory to analysis the Wanfu graduate. Through analysis of the cause and patterns ofthe Wanfu graduate, there are some problems about the supervision mechanism. One is theauditing behavior is not rigorous, the other one is the punishment mechanism of the audit ofIPO which is unreasonable. So, the paper recommend some suggestions which includebuilding the selection mechanism of auditor in the IPO of enterprises, further strengtheningthe quality control of the accounting firm and putting the strict punishment mechanism for theaccounting firm undertaking the IPO audit business into effect.