Research On Financial Fraud Of New OTCBB Enterprises

Financial fraud obstructs the healthy development of the market economy in China,especially reflected more on the healthy operation and development of the capital market.Currently,the research of the financial fraud issues is mainly focused on the Main Board,Small and Medium Enterprise Board(SME Board),and Growth Enterprise Board(GEB).However,for the National Equities Exchange And Quotations(also called New OTCBB,NEEQ),the research is completely non-existent.The New OTCBB as an essential part of China market economy development,its financial activities affects the stability and development of the capital market directly.Therefore,the first enterprise of the New OTCBB,LIAONING SHENXIANYUAN GINSENG Co.,Ltd,which had financial fraud issues,will be the research object to discuss an in-depth analysis of the agents,manners and other primary fields of the NEEQ financial frauds,and come up with new ideas about how to prevent the financial frauds which happened on the NEEQ enterprises as well.Hopefully this research could improve the quality of the accounting information disclosure provided by the public listed New OTCBB companies and relieve the problems on the asymmetrical information additionally to create a better way for the New OTCBB to allocate resources on enterprises reasonably.The methodology of this research combines theoretical analysis and case analysis together.Theoretical analysis demonstrates relevant concepts and theories of the financial fraud,and also introduces the evolution and fundamental features of the domestic New OTCBB,and the differences comparing the New OTCBB with the Floor Trading market.Furthermore,it also illustrates the financial frauds' current situation existed in the NEEQ enterprises from various aspects such as the reasons why it exists,manners used,and hazards it causes.The case analysis mainly contains SHENXIANYUAN's profile introduction and reviews of its financial fraud incident,and analysing result of this incident from multiple perspectives as well.For instance,causing reasons,manners involved,and influences generated.Companies inflate its profits via understating whole cost and overstating the amount of connected transactions.From companies' inside perspectives,there are loopholes in SHENXIANYUAN management structure internally.Profiteering is one agent causing financial fraud happenings.From the point view of intermediary organisations,the second reason for financial frauds results is lacking of investigations by host securities companies and shorting of independences from certified public accountant.In consideration to the incomplete basic principles of the New OTCBB,it causes low accuracy of the required information for being an NEEQ enterprise,less stringent and low quality of the demanded accounting information disclosure,and also inadequate marketing supervision and so on happenings,which are combined as the third motivated agent for enterprise financial frauds.The consequence of financial fraud brings great negative effects on the companies themselves and the New Third OTC capital market.Finally,considering the results that came from analysing agents for SHENXIANYUAN's financial fraud incident,this paper puts forward three precautionary strategies from three aspects respectively.The first field focuses on improving enterprises' management structures,guaranteeing that ‘three meetings and senior management' performs their duties and cooperates with each other,and strengthening the company's internal control system as well.Secondly,it is essential to improve the executive ability for host securities companies to reinforce continuous supervision on the public listed companies,and at the same time,increase the independence of certified public accountant.The third aspect for optimising the primary principles of the New OTCBB contains perfecting the rules for the public listed companies to join in the NEEQ market and its relevant withdrawal mechanisms,ensuring the stability of market operations,enhancing the authenticity and sufficiency for accounting information disclosure,and refining more accurately on the accounting information disclosure meanwhile increasing the penalties on illegal enterprises.