Research On Detection Of Financial Reporting Fraud Risk Of Chinese Listed Company

In recent years, fraudulent financial reporting cases occur frequently, how to prevent and control the financial fraud effectively has become a key task of the construction of China’s capital market. In theory and practice, it is also the important issue to solve. However, with the gradual diversification of means of fraudulent financial reporting, prevention and management of financial statement fraud has become a large and complex project, it may take a long time to be prevent and manage the financial statement fraud truly and effectively. For the average investor, to avoid wrong investment decisions, the most practical countermeasure is to improve their ability to identify the risk of fraudulent financial reporting. By identifying the suspicious circumstances surrounding the financial report information, investors can improve the correctness of investment decision-making.From the view of general investors, based on the Combs Harvard analysis framework and modern risk oriented audit theory, this paper improve an analysis framework of identifying the fraud of financial reports. From the perspectives of the overall level and the finding level of financial reporting, the analytical framework can be applied to identify the characteristics of financial reporting fraud risk of the target enterprise. The factors of the overall level includes: industry environmental characteristics, nature of the company, strategic and operational risks, critical accounting policies and estimates and performance measurement and evaluation; the factors of the finding level includes: balance sheet risk analysis, profit risk analysis and cash flow risk analysis.This framework provides a methodology for case studies, using the analytical framework to explore Nan Fang Company.The overall level of financial reporting fraud risk signals include as follow: policy risk, operational risk, demand risk, competition risk of textile industry can make Nan Fang Company face bigger risk in operating; the diversified development strategy of Nan Fang Company makes business risks rise, and the low cost competition strategy is difficult to obtain sustainable and high profit; Nan Fang Company internal unfair trading business may be transported to the interests of the suspect risk signal.The finding level of financial reporting fraud risk signals include as follow: the change of accounts receivable and revenue is not comparable,so the company may increase profits by accounts receivable; accounts receivable turnover rate and inventory turnover rate have fluctuated, but the current assets turnover rate has remained steady, this situation cannot be explained reasonably; operating income growth rate and total assets growth rate has increased,while the total profit growth rate has a huge decline, this situation cannot be explained reasonably; asset liability ratio of Nan Fang Company has been in a high level of ratio, but profit growth rate is still in the normal level; the changes of operating income, operating profit and net profit are abnormal and so on.found a lot of signal of financial reporting fraud of Nan Fang Company, Finally it is concluded that the Nan Fang Company conducted financial reporting fraud.