A Case Study About IPO Financial Fraud Of Xintai Electric Based On The Theory Of Fraud Risk Factors

With the steady development of China's economy and the deepening reform of the securities market,initial public offering(IPO)has become an important part of the development strategy of many companies.IPO is very attractive to the company in terms of financing scale,financial risk benefits and popularity.However,with the IPO audit repeatedly suspended and restarted,IPO barrier lake phenomenon gradually appeared.Therefore,the phenomenon that some eager companies make their financial statement data meet the issuing conditions through financial fraud frequently occurs.IPO financial fraud will not only seriously damage the interests of the majority of shareholders,but also hit investors' confidence in the securities market.Therefore,the audit committee audit is getting strict,and the CSRC's penalties on IPO financial fraud are also increasing.All of these indicate that the regulators pay more and more attention to preventing IPO financial fraud.Under the above background,this paper adopted the research methods that review and summarize the domestic and foreign outstanding theoretical achievements.on the basis of the comprehensive theory of fraud risk factors and the GEM's first retreat-Xintai electric as a case,this paper conducts a comprehensive analysis of the IPO financial means for fraud and the fraud motivation,which lead to some related research conclusions and policy Suggestions.This is of great significance to prevent IPO financial fraud and improve investor protection mechanism.IPO means a company sells its shares to the public for the first time to raise money.IPO listing time span is relatively long,and the audit restrictions are relatively strict,so some issuers have resorted to IPO financial fraud to achieve the ultimate listing purpose.IPO financial fraud refers to the behavior that the issuer consciously conceals the users of financial statements by means of omission and misstatement of financial statement information before and after the listing driven by the specific background of IPO.IPO financial fraud behavior has the characteristics of long duration,multi-party participation,strong concealment and low-cost of fraud,and its common means are mainly manifested as transaction de-correlation,fictitious business activities,improper use of accounting policies and accounting estimates,false increase of income and false reduction of costs and expenses.Combined with the theory of fraud risk factors,the risk factors of IPO financial fraud mainly come from five aspects: moral quality,fraud motivation,fraud opportunity,possibility of fraud detection and the nature and degree of fraud punishment.Since 2010,China's economy has continued to decline,and many manufacturing industries which include electrical machinery and equipment manufacturing are facing severe overcapacity.Thus the continued profitability of Xintai electric has been affected,which is one of the main reasons Xintai electric has been rejected for the first time.In view of the pressure and related questions,Xintai electric replaced the sponsor,began a series of financial fraud.The IPO financial fraud means of Xintai electric are shown as four ways: using external loans to make up the recovery of accounts receivable at the end of the period,less provision for bad debts,falsely reducing the cost of raw materials and the actual controller borrowing money from the company in the name of employees.After the fraud was exposed,the CSRC and the Shenzhen Stock Exchange punished heavily to the Xintai electric and its relevant person in charge,intermediary institutions and its relevant person in charge respectively.According to the analysis,the reasons for the IPO financial fraud of Xintai electric are mainly reflected in the following aspects: the lack of professional ethics in the directors and supervisors of Xintai electric,the failure of relevant intermediary personnel to do their due diligence;the continuous lack of profitability before the second session,the pressure on capital turnover and impure shareholding purpose of some major shareholders;high concentration of equity,the internal control's defects and the relevant bank's slack document audit management;the fraud means of forging official seal of Xintai electric is relatively hidden,the audit of accounting firms lacks independence and the information asymmetry between the issuer and the issuing committee;China's current penalty for IPO financial fraud is relatively lenient and the imperfect system of advance compensation.In combination with the case analysis,this paper draws the following four conclusions: senior managers' lack of professional ethics breeds IPO financial fraud;high concentration of equity greatly creates conditions for IPO financial fraud;the lack of independence in certified public accountants audit is not conducive to the detection of IPO financial fraud;fraud costs and illegal income does not match is why IPO financial fraud can't be prohibited.In view of the above conclusions,the author gives four policy Suggestions from the internal and regulatory aspects of the company.Through the analysis of this case,the author hopes to make a contribution to the improvement of the theory of financial fraud,to provide references for the identification and prevention of IPO financial fraud,and also wish to put forward some operable practical Suggestions on improving the advance compensation system and corporate governance.