Identification Of Financial Fraud In Indirect Ralated Party Transactions And Audit Improvement

As a new method of financial fraud,indirect related party transaction is hidden and difficult to audit.The subsidiary of Er-kang sold raw materials to a third-party supplier,and then sold to its parent company,which made the related party transactions unrelated.As a result,the transaction was not offset in the combined statement,and the revenue,cost and profit are increased.According to the Decision on Administrative Punishment issued by the Hunan Securities Regulatory Bureau,enterprises and their supervisors were warned and fined,while enterprises and Tianjian accounting firms would face claims from investors for their rights.For audit failure,the auditor should bear the responsibility of auditing and face litigation risks.Therefore,on the one hand,this paper aims to analyze the defects of fraud audit in indirect internal transactions,and put forward suggestions for improving the fraud audit.On the other hand,it is necessary to dig out the special identification signals in the fraudulent internal transactions of curves,and to help improve the audit analysis procedures.By means of sorting out the relevant literature,this paper first analyzes the logic of fraud signal recognition based on fraud triangle theory and asymmetric information theory.Then through the analysis of audit defects in related party fraud,combined with identification signals,we finally put forward some audit improvement suggestions.The conclusions are as follow:(1)Er-Kang achieved indirect related party transaction through a third party supplier.Its identification signals lie in the reverse changes of net profit and operating cash flow,abnormal inventory growth and purchasing gap.(2)The main reasons for audit failure lie in the uncertainty of distinguishing related parties,inadequate analytical procedures and greater detection risks.Therefore,it is necessary to improve the audit procedures based on identification signals,and improve the ability of auditors.Most of the existing related party fraud documents are direct related party transactions,and fews have analyzed the fraud methods of indirect related party transactions in detail.Therefore,this paper is a supplement to the existing literature.At the same time,the existing empirical research mostly are for the construction of fraud identification model,empirical research mostly are the summary of fraud methods and make recommendations,so this paper based on triangle theory to make analysis,and use the identification signal to improve the audit process research method is relatively novel.The main contributions of this paper are:(1)Bring up some suggestions for the improvement of Chinese accounting firms and individuals,including the improvement of specific audit procedures and new requirements for the auditors.(2)By establishing the identification signal of this kind of financial fraud,investors and regulatory units can be provided with new way to analyze and identify the risk,which has a certain significance to improve the order of the capital market in China.