Case Study On Financial Fraud Of DZH

The development of Chinese economy boosts the prosperity of its capital markets,and both financing scale and the number of listed companies have gained drastically.Successive fraudulent activities,however,are also exposed to the public.It is not simply happened in China,but becomes a worldwide problem.Fraud may lead to the business distress,cause steep losses for stakeholders,and hinder the sustainable development of capital markets as well.Though China has already passed laws and regulations to strengthen supervision,it is still a tough issue to combat considering its frequency of occurrence.The thesis hereby uses case analysis to study DZH as an example.Countermeasures will be put forward after analyzing fraudulent inducements.In 2013,DZH overstated profit for 120 million by adopting 6 methods including inflated revenue and understated costs.The thesis hereby analyzes its reasons by using Triangle Theory.Pressure factor involves delisting for public companies.Opportunity factors encompass two sides: internally,DZH itself has unsound corporate governance structure and weak internal control.Externally,the dereliction of duty of accounting firms as well as insufficient penalties for fraud eventually leads to this behavior.Rationalization factor refers to the denial of the fraud.To prevent financial fraud of listed companies,countermeasures have three aspects.First,to reduce pressure,there exist better solutions when facing performance evaluation and information disclosure of listed companies.Second,to restrict opportunities,DZH ought to perfect corporate governance by optimizing its equity structure and clarifying the responsibility for the board of directors and the board of supervisors.It also needs to improve internal control system,focus on its 5 components and guarantee the implementation of that system.Intermediaries are obliged to strengthen audit quality control and take charge of audit reports.Meanwhile,they should pay attention to the training for their employees including professional skills and business morals.Severe punishment should be made to increase fraud costs as deterrence as well.Last,to get rid of rationalization,executives can make long-term strategy for fear of sacrificing the development of the company because of their greed.They may also try to build an integrity corporate culture.