How to effectively identify fraudulent financial statements

1. Gross profit margin is higher than other companies in the industry. If the company's production technology and business model have not made major improvements during the reporting period, the gross profit margin should remain relatively stable. If it is found that the company's gross profit margin has increased rapidly, more caution is often needed. For example, from 2015 to June 2017, Company A's comprehensive gross profit margin increased from 22% to 30%. During this period, the company's production technology did not make breakthrough improvements. It is unreasonable to achieve a gross profit margin that exceeds the industry average, and The selling price of the company's products showed a downward trend during the reporting period, but the unit cost dropped by 20% within a year. It was later discovered that the company had inflated its profits during the reporting period by undercounting costs.

2. The closing balance of prepayments and construction in progress was relatively large, and fixed assets grew rapidly during the reporting period. Many fraud cases show that advance payments, projects under construction, and fixed assets often hide "landmines." If a company has external supply costs, it often needs to close the loop of funds through fictitious projects under construction, fixed assets, and advance payments.

Case 1: Jiangsu Yabaite Technology Co., Ltd. (hereinafter referred to as Yabaite) used fictitious overseas engineering projects and domestic and foreign building materials trade to inflate its business income and whitewash its financial statements. Yabaite From 2015 to September 2016, through the fictitious Multan Bus Project in Punjab Province, Pakistan, fictitious international trade and domestic trade, etc., the accumulated inflated operating income reached 580 million yuan, and the inflated profit was approximately 260 million yuan, of which the inflated increase in 2015 The profits accounted for 73% of the total profits disclosed in the current period, and the inflated profits in the first three quarters of 2016 accounted for about 20% of the total profits disclosed in the current period.

It is understood that the owner of the Multan project in Pakistan is the Multan Development Authority, which is building an urban rapid transit line with a total investment of more than 350 million US dollars. However, the Multan Development Authority has not cooperated with Yabaite at all, and the income stated in the annual report is completely false. In 2015, Yabaite transferred funds to affiliated companies such as Shanghai Yuanpan and Shanghai Xuanyi under its control through false purchases, and then transferred the funds back in the name of sales money through customers such as Shanghai Guiliang and Shanghai Jiuren to build funds. Loops, falsifying “real” money flows. In the same year, Yabaite forged false construction material export contracts with overseas companies, shipped goods declared for export to Angola to Hong Kong, and then imported the goods back to China by affiliated companies controlled by it.

Case 2: On November 23, 2017, Erkang Pharmaceutical issued an announcement that the inflated profit of Erkang Pharmaceutical in its 2016 annual report totaled 231 million yuan, which was mainly divided into two parts: one part was the inflated profit of Cambodian Erkang The main business income is 229 million yuan, and the net profit is expected to be inflated by 209 million yuan; the other part is that the company's agent in North America, SYN Company, generated sales returns and failed to conduct accounting treatment in a timely manner, resulting in an inflated main business income of 26 million yuan. , falsely increasing net profit by 23 million yuan.

Erkang Pharmaceutical’s fixed assets have grown rapidly in the past three years, from a book value of 719 million yuan in 2014 to 1.769 billion yuan at the end of 2016, of which buildings and buildings accounted for 49.7% of the fixed assets. ,71.01%,72.32%. In 2015 and 2016, the amount of fixed assets transferred from projects under construction was 678 million yuan and 555 million yuan. The company's fixed assets account for a much higher proportion of total assets than companies in the same industry.

However, according to the house and building information disclosed by the company, the amount of property tax that should be paid in 2016 should be at least 5.5242 million yuan, which is greater than the actual amount of property tax paid by the company. Therefore, some people question that Erkan Pharmaceuticals may have fabricated some properties.

In addition, Erkang Pharmaceutical’s announcement shows that it has invested more than 2 billion yuan in fixed assets in the past two years, but only three bidding information were found on the official website, which is extremely inconsistent with its fixed asset investment.

Case 3: Jinya Technology, another financial fraud case that has received widespread attention recently: Jinya Technology suffered a large loss in 2013, and turning around the loss became the primary goal in 2014. In order to "turn around losses", listed companies have set up two sets of accounts, one to record real data, and the other to record "fabricated" data for external disclosure.

After investigation and verification, Jinya Technology inflated its operating income by 73.6351 million yuan and inflated operating costs by 19.2533 million yuan in its 2014 annual report*** through fictitious customers, forged contracts, forged bank documents, forged material and product delivery and receipt records, and concealed expenses. Yuan, undercounting sales expenses of 3.685 million yuan, administrative expenses of 1.3208 million yuan, financial expenses of 7.953 million yuan, and non-operating income and expenses of 13.1549 million yuan. Not only that, the listed company also committed fraud by inflating bank deposits by RMB 218 million and falsely stating advance payment of RMB 310 million for projects. This resulted in an inflated total profit of 80.4955 million yuan in its annual report, accounting for 335.14% of the total profit disclosed in the current period. As a result, Jinya Technology changed from loss to profit. Obviously, Jinya Technology's "turn from loss to profit" in 2014 was the result of its financial fraud.

3. Large sales returns. If there is a large sales return close to the balance sheet date, you should pay attention to the authenticity of the sales and whether there are fictitious sales.

Case: From 2013 to 2015, Kunming Machine Tool (*ST Kunji) signed contracts with some dealers or customers. The dealers or customers falsely purchased Kunming Machine Tool products and paid deposits in advance, but ultimately did not take delivery of the goods. , and later return the deposit to the customer through third-party account bypassing or other methods, or directly handle the customer's return to complete the false sale. During this process, Kunming Machine Tool fabricated documents such as contracts, invoices, and transportation agreements, and fabricated revenue through fictitious transactions to achieve the purpose of inflating profits for the year. In order to prevent the false income from being discovered by auditors, Kunming Machine Tool set up a warehouse outside the accounts and shipped the inventory out of the warehouse in the way of normal sales. However, the inventory was not actually shipped to customers, but was transferred to the warehouse outside the accounts. After that, Kunming Machine Tool disposed of off-book inventory through "secondary" sales, fictitious sales returns, or dismantling finished products into spare parts and fictitious purchases from third parties, etc. However, the original fictitious accounts receivable cannot be offset. . In order to prevent the establishment of an off-book warehouse from being discovered by auditors, Kunming Machine Tool also requires the lessor who leases the off-book warehouse to issue the rental business invoice as an invoice for transportation expenses. Kunming Machine Tool had 115 falsely calculated incomes in 2013, totaling 122.3526 million yuan, 46 falsely calculated incomes in 2014, totaling 79.460 million yuan, and 34 falsely calculated incomes in 2015, totaling 20.2036 million yuan.

4. Performance growth is contrary to the public information and common sense. Obtaining external non-financial data from customs, import and export credit insurance companies, industrial and commercial information inquiries, etc. to verify the authenticity of the company's performance often yields unexpected gains.

Case 1: Erkang Pharmaceuticals. The media questioned the report and provided a set of customs data. In 2016, China imported 30,900 tons of cassava starch to Cambodia, with an amount of US$10.4283 million, equivalent to RMB 0.72 billion. It can be inferred from this that most of the products of the Erkang Pharmaceutical Cambodia project are not imported to China but sold overseas. Even if it is assumed that the RMB 72 million sold to China is the net profit realized by Erkang (Hong Kong), the company's net profit from overseas sales of the Cambodia project is as high as RMB 543 million, which is higher than the company's gross profit from overseas sales disclosed in Erkang Pharmaceutical's 2016 annual report 434 million. The above data is inconsistent with Cambodian companies achieving profitability.

If a company commits financial fraud by confirming revenue in advance, it often goes against common sense. If you analyze the financial data more, you can often find clues to financial fraud.

Case 2: From 2011 to 2015, more than 90% of the sales revenue of Jinhui Wine (603919) was contributed by dealers. From 2011 to 2015, there were 9 top five customers (two of which were under the same control) people, so the statistics are 9, and the names of the top five customers were not disclosed in 2016). 6 of them are located in national-level poverty-stricken counties in Gansu Province, and the sales they contributed were as high as 112.7141 million yuan and as low as 19.4868 million yuan. Six of the top five customers in the past are located in Longnan and Dingxi cities in Gansu, including Longnan Xingda Trading Co., Ltd., Danchang Century Jinhui Distribution Point, Lixian Hongyun Trading Co., Ltd., Weiyuan County Xincheng Famous Wine Marketing Center, Lintao County Yishunxiang Famous Liquor Comprehensive Supermarket and Longxi County Futai Liquor Co., Ltd.

Longnan Xingda Trading Co., Ltd. (the same shareholder as Longnan Sanheyuan Trading Co., Ltd., Sanheyuan was canceled in September 2013, here for the convenience of statistics, it is collectively referred to as Longnan Xingda Trading Co., Ltd. ) has been the largest customer of Jinhui Liquor for five consecutive years. (Sanheyuan) sales revenue in 2011 was 82.9981 million yuan; in 2012 it was 112.7141 million yuan; in 2013 it was 97.0032 million yuan (Xingda Trading); in 2014 It was 54.138 million yuan; in 2015 it was 50.9703 million yuan.

The tax data obtained by the reporter from the Longnan Municipal State Taxation Bureau and Wudu Branch showed that the company’s monthly sales revenue was 34,000 yuan (as of 2014), which means the annual sales revenue was 408,000 yuan. It is more than 275 times different from the highest annual sales revenue disclosed by Jinhui Wine (2012, 112.7141 million yuan).

The second largest customer in 2011 and 2012, the fifth largest customer in 2013 - Dangchang Century Jinhui Distribution Point (cancelled in January 2015), Jinhui Wine disclosed its 2011 sales revenue of 2,989.30 Ten thousand yuan; sales revenue in 2012 was 40.838 million yuan; sales revenue in 2013 was 28.9212 million yuan. Data from the Dangchang County Taxation Bureau shows that the self-employed person’s monthly sales income is less than 20,000 yuan.

Li County Hongyun Trading Co., Ltd. (hereinafter referred to as Lixian Hongyun Trading), Weiyuan County Xincheng Famous Wine Marketing Center (hereinafter referred to as Weiyuan Xincheng Famous Wine), Lintao County Yishunxiang Famous Wine Comprehensive Supermarket (hereinafter referred to as Weiyuan Xincheng Famous Wine) (referred to as Lintao Yishunxiang Supermarket), the sales data corresponding to the tax system of the three top five customers over the past years are also quite different from the data announced by Jinhui Wine.

Tax data from the local tax bureau shows that the taxable income of Hongyun Trading in Li County was 2.1963 million yuan in 2013, 4.9982 million yuan in 2014, and 6.8047 million yuan in 2015. The Jinhui Wine announcement shows that from 2013 to 2015, the sales of Hongyun Trading in Li County were 38.8489 million yuan (the third largest customer), 33.1272 million yuan (the second largest customer) and 33.1925 million yuan (the fifth largest customer) respectively.

Both are individual industrial and commercial households, Lintao Yishunxiang Supermarket’s monthly taxable business volume is 46,000 yuan, which means the annual sales income is 552,000 yuan. Among the results announced by Jinhui Wine, the lowest annual sales were 25.3317 million yuan (2012) and the highest were 37.3893 million yuan (2015).

The monthly sales revenue of Weiyuan Xincheng Famous Wine from 2011 (from May) to 2012 was 4,800 yuan, which means the annual sales revenue was only 57,600 yuan, while Jin The customer's sales revenue disclosed by Huijiu in 2011 and 2012 was 19.9752 million yuan and 26.1836 million yuan, which was about 454 times different from the data disclosed by Jinhui Wine in 2012 (26.1836 million yuan/57,600 yuan).

The taxable sales of Longxi County Futai Liquor Co., Ltd. in 2014 were 2.5633 million yuan and 2.2798 million yuan in 2015, while the corresponding annual sales disclosed by Jinhui Liquor were 31.9275 million yuan. and 41.7017 million yuan, which are also far apart.

Case 3: The main driving factor for Zhongyida to turn losses into profits in 2016 was the acquisition of 51% of Fujian Shanghe's equity. Fujian Shanghe achieved operating income of 569 million yuan and net profit of 69.53 million yuan in 2016. Zhongyida's full-year profit was only 4.68 million yuan. Its performance in 2014 and 2015 was average, with net profits not exceeding 3.5 million yuan. The turning point occurred in the third quarter of 2016 when it was acquired by Zhongyida. After the acquisition, Fujian Shanghe continued to undertake engineering business from large central enterprises and large local state-owned enterprises.

Guiyang Guanshanhu District Modern Manufacturing Industrial Park Jingdong Road Project, Guizhou Province Xifeng County Longquan Avenue Construction Project Second Bid Section Project, Guiyang City Huaxi District Mengxi Road Second Bid Section Project, Bijie City Lishu Five projects including the earthwork and foundation treatment project of the high-speed rail passenger transport hub project and the general contracting and construction of the first section of Taoyuan Avenue road engineering in Xiuwen County, Guizhou Province were the five largest projects undertaken by Fujian Shanghe in 2016, contributing 530 million yuan in revenue , accounting for 94% of Fujian Shanghe’s annual revenue.

The projects are all in Guizhou, and the general contractor of 4 of them is China Railway 17th Bureau (two of the projects, the sub-general contractor, China Railway Guizhou Municipal Engineering Co., Ltd., is a wholly-owned subsidiary of China Railway 17th Bureau). The contract signing time of these projects was only 4 months apart. Therefore, Fujian Shanghe still significantly shortened the construction period despite fighting on almost multiple fronts and starting construction at the same time.

Take the Lishu High-speed Railway Passenger Transport Project in Bijie City as an example. The project is expected to start in January 2016, with a construction period of 2 years. After a delay of more than 5 months in starting construction, Fujian Shanghe signed a subcontract on August 6. In December, it was shown that the project had been completed with a completion rate of 100% and a revenue of nearly 60 million yuan was recognized. Correspondingly, relevant project personnel from China Railway 17th Bureau stated that the project is still under construction and is expected to be completed in 2019.

5. Sales and purchase transactions occur with the same customer at the same time. This kind of financial fraud is common in platform companies, such as a gaming company. Because of the pressure of performance betting, 3 fictional 100 million yuan in sales to a foreign company, and at the same time fictitious purchases from another foreign company. The sales and purchase amounts are exactly the same.

6. Large-scale related party transactions. Whether the enterprise has sales and purchases with two related companies at the same time. If the transaction is fictitious, the funds received from the sales will often be returned to the related company through the purchase transaction, thereby completing the closed loop of funds. If the company has sales and purchases with two related companies at the same time, during the investigation In the process, it is necessary to focus on the authenticity of the transaction and whether there is a substantial related party relationship between the enterprise and the counterparty.