Research On The Supervision Of Yihua Life Financial Fraud Case

In recent years,China capital market has developed rapidly and with it,the system of China’s capital market has been gradually improved,and the number of listed companies has been increasing while many high market capitalisation enterprises have emerged.However,at the same time,there have been numerous incidents of fraud in listed companies,and some companies have engaged in financial fraud to deceive the public due to poor business performance and other reasons,which inevitably undermines the interests of investors in the capital market and is also eroding investors’ trust in the capital market.Among them,cases of financial fraud in private listed companies usually show obvious characteristics of family businesses.The financial fraud case of Yihua Life Technology Company Limited("Yihua Life")was one of the first cases of financial fraud to be subject to the new Securities Law,which resulted in a hefty fine.Yihua Life is a typical family-owned company,with governance and management mainly carried out by close family members;Yihua Life was questioned in the media for its "high level of savings and loans".Following an investigation by the SFC,it was established that Yihua Life had inflated its profits by falsifying domestic sales and fictitious overseas sales.It also falsified bank documents and inflated its monetary funds by not keeping accounts,making false entries and not disclosing transactions with related parties as required.The case studied in this paper,YIHUA Life,was a systematic financial fraud that was decided and organised by the core of the actual controller,and had the typical characteristics of financial fraud in a family business,while the fraud lasted for a long time,took a new form,was concealed and the amount of the fraud was significant,which seriously infringed on the interests of investors.In the context of the introduction of the new Securities Law,financial frauds will face strict disposal and speedy accountability,which significantly improves the deterrent effect of regulation,while the further improvement of the delisting system by the stock exchange also enhances the efficiency of self-cleaning of the securities market.This paper analyses the causes and methods of financial fraud in the case of Yihua Life,examines the problems with regulatory measures,and makes recommendations to help regulators effectively prevent similar cases of financial fraud in listed companies.Based on the study of the Yihua Life financial fraud case,this paper puts forward regulatory recommendations that regulators can strengthen supervision in the following aspects: compacting the legal responsibilities of controlling shareholders and actual controllers;improving the mechanism of supervision and checks and balances by independent directors;increasing the penalties for those responsible for fraud;increasing the supervision and penalties for accounting firms;strengthening collaborative supervision within and outside China to prevent cross-border fraud;and improving the information disclosure system to Strengthen monitoring of abnormal information.