A Case Study On Financial Fraud Of Hunan Er-kang Pharmaceutical Co.,Ltd.

In the past decades,China's capital market has been established and made great development and progress from region to country.In order to maintain the market order and guarantee the fairness,the government and other relevant departments have promulgated a series of laws and regulations.The development of securities market doesn't only promote the birth of a large number of listed companies,but it also brings many problems.With the continuous improvement of the capital market,the phenomenon of financial fraud of listed companies is evolving.On the one hand,these purposeful and planned fraudulent acts cause huge losses to the state,enterprises and individuals,on the other hand,they waste a lot of human and material resources to punish and investigate them.Therefore,it is of great practical significance to study the financial fraud of listed companies and discuss the prevention and control measures.Erkang Pharmaceutical Company's financial fraud event is very representative.Erkang Pharmaceutical,which was a popular "white horse stock",used to be the first choice of many investors.It wasn't until 2018 that the real scandal of its fraud was revealed.In November 2017,Erkang Pharmaceuticals issued a self-examination report under various pressures,admitting financial fraud,and said that in the period of 2015 to 2016,there were irregularities of increasing the main business income every year,and in 2016,and the amount was huge.Based on the triangle theory of financial fraud and internal control theory,this paper combs the events before and after Erkang Pharmaceutical Counterfeiting,identifies the doubtful points of its existence,deeply excavates the causes of financial fraud,and combines with a number of similar research cases.It gives specific suggestions to prevent and reduce financial fraud aiming to contribute to the long-term development of China's capital market.This article mainly consists of four parts: the first part is the introduction,which includes the research background and significance of the article,the literature review at home and abroad,the theoretical basis of the article,and the research methods and contents;the second part is the background introduction of Erkang Pharmaceutical Company's financial fraud cases,including the introduction of Erkang Pharmaceutical Company,the description of the financial fraud cases,focusing on the identification.In the process of counterfeiting,the phenomena of excessive gross interest rate,overstock of inventory under the condition of insufficient supply and demand of products,and excessive growth of fixed assets have aroused doubts.The third part is to analyze the means of fraud in this case.Starting from the fraud triangle theory and internal control theory,it deeply explores the reasons that Erkang Pharmaceutical Company took the risk of choosing financial fraud.In the fraudulent triangle theory,the company faces many pressures,such as the pressure of pharmaceutical manufacturing industry and the pressure of dividend policy within the company;the current situation of low cost and high income of fraud provides opportunities for financial fraud;a dominant ownership structure realizes the dream of cash arbitrage for large shareholders;from the perspective of internal control theory,internal supervision is not in place;external audit lacks independence,and external audit lacks independence.and can't perform its supervisory duties effectively.The lack of functions of the board of directors and the board of supervisors,and the low cost of violations are all the reasons for its financial fraud.The fourth part puts forward some suggestions to prevent financial fraud for Erkang Pharmaceutical Company.In order to reduce the pressure,the company should make long-term development strategy realistically and avoid blind expansion;the government should establish a correct view of achievement,the relevant departments should increase the punishment of financial fraud to reduce the opportunity of fraud;improving the professional ethics of managers can fundamentally eliminate the excuse of fraud.To improve the control environment,we should start with the establishment of an honest corporate culture;not only that.We should strengthen internal supervision and raise the attention of internal audit;external supervision is indispensable,too.We must improve the compensation mechanism and establish a multi-level supervision system.The establishment of fraud index can effectively carry out early warning of financial fraud.This model overcomes the drawbacks of traditional Logistic model,predicts the possibility of fraud to the greatest extent,and provides practical and effective measures for avoiding fraud.It is urgent to guard against financial fraud in listed companies.Everyone should contribute to creating a good investment environment.