This is a case of using accounting deadline to make a fuss about the confirmation of income, expenses and liabilities, thus exaggerating the performance of enterprises and implementing accounting fraud. Queen vacuum cleaner company is a listed company, which is famous for producing durable vacuum cleaners. Mr. Tang Shilan is the CEO of the vacuum cleaner company. At the beginning, in order to gain control of the company, Mr. hiram did not hesitate to mortgage all his private assets to obtain a huge loan to buy shares in Queen's Company. Only when the profits of Queen's company increase substantially will he not get into greater financial difficulties. Shi Lin and his management team don't know much about the vacuum cleaner industry, and they arbitrarily believe that developing a new generation of vacuum cleaners is the best way to greatly increase profits.
In order to raise funds for the new production line, Mr. Hiram instructed the financial manager to exaggerate the profits for several quarters in order to raise the stock price, and then sell some shares to generate funds when the stock price rose. The financial manager chose to play tricks on the deadline of sales and expenses. He instructed the sales manager to issue late sales invoices before the end of the fiscal year, instructed the warehouse to deliver goods in advance, and fabricated a large number of illegal branches to cover up fraud. In addition, he also transported the accumulated goods to other places, regarded them as sales, and recorded them in sales revenue; Locking unpaid bills in the cupboard does not confirm liabilities.
Hiram got much-needed cash flow through his plan. Because the company never wrote off false sales after the deadline, the auditors did not find the company's fraud.
The sales performance and profits of a new generation of vacuum cleaners soared. However, the good times did not last long. Soon, consumers found that there was a serious problem with the quality of the vacuum cleaner and asked for a return. The reason behind the scenes is that Hiram is so greedy for profits that the original solid metal part of the vacuum cleaner is replaced by plastic components, which leads to the heat resistance of the product.
As a result, the initial profit turned into angry complaints, and the warehouse began to have no space to store the returned products. Later, the company had to rent a remote warehouse to store the returned products and destroy all the records reflecting the return, thus deceiving the auditors.
Due to the poor product reputation, the company's reputation plummeted and its sales declined seriously. The huge sales return and the sharp drop in sales have brought great pressure to hiram and the financial manager. Facing the auditors who asked for additional information, they finally pleaded guilty on the advice of lawyers.
In this case, investors and creditors suffered * * * 40 million dollars because of the fraud of Queen Company, and the company also declared bankruptcy. In addition, Mr Hiram was sentenced to one year's imprisonment and received millions of compensation.
Two. case analysis
For the analysis of this case, first of all, for this fraud case, from the fraud itself. This case uses cut-off fraud to make false profits, which is realized by time difference.
There are usually two forms of interception fraud: one is to confirm income in advance, and the other is to delay recording expenses or liabilities. However, no matter which method is adopted, as long as the fraud is made through the time factor, the fraud methods chosen by the counterfeiters are nothing more than the following three types (the following methods can be compared with the method of delaying the recording of expenses or liabilities, taking the income confirmation in advance as an example):
(1) Playing time games: In order to achieve certain sales targets or profit targets, companies often don't settle accounts in time at the end of the year, and put the next sales business into the previous fiscal year in advance, which is the most commonly used method. (2) Confirm all benefits before completing all services: This method ignores the provisions of the accounting standards on the "percentage of completion method", confirms all benefits brought by services in the account before the services are fully provided, does not write off accrued expenses, and counts the difference to be compensated into profits. (3) Confirm sales by order: that is, confirm sales revenue when receiving goods or goods orders. What's more, many companies transport the goods to their private warehouses or branches before and after the audit and record them as sales.
We believe that in this case, there are the following kinds of fraud:
1 Confirm revenue in advance: invoice after opening in advance before the fiscal year;
(2) Recording non-existent income: sending accumulated goods to other places is counted as sales income;
3 overestimate the income: lock the unpaid bills in the cupboard and do not confirm the liabilities.
So what is the reason for fraud?
Judging from the three elements that constitute fraud-pressure, opportunity and excuse, pressure is undoubtedly the most primitive motive force of fraud. At the beginning, in order to gain control of the company, Mr. hiram did not hesitate to mortgage all his private assets to obtain a huge loan to buy shares in Queen's Company. The only way to repay the debt is to get income from Queen Company. If the profits of Queen's company don't increase substantially, he will fall into greater financial difficulties. So, he has the most important factor. For a company, although its property rights are owned by shareholders, the daily management rights are in the hands of managers, which essentially forms "insider control", and the separation of property rights and management rights gives counterfeiters an opportunity. These are all objective factors.
As far as subjective and human factors are concerned, managers' blind and arbitrary decision-making: Hiran and his new management team arbitrarily decided that the old production line was too old without understanding the vacuum cleaner industry, and developing a new generation of vacuum cleaners was the best way to greatly increase profits; Short-sightedness of managers: hiram greedily pursued high profits and replaced the original solid metal parts of vacuum cleaner with plastic components, which led to the heat resistance of the new vacuum cleaner. Questions about new products followed. First of all, some consumers said that the internal gear of the vacuum cleaner fell off and the product should be returned; Then there are reports everywhere that the internal organs of the vacuum cleaner will melt when heated; Choice between personal interests and collective interests: After hearing hiram's plan, the financial manager also supported this illegal trick of exaggerating profits. His motivation is simple: he believes in Mr. hiram's creativity about new products and naively thinks that this kind of accounting fraud is only temporary; Besides, he must keep his job. All these make the consequences of fraud more serious.
In the case, we can see that the lack of supervision institutions is also one of the important reasons for the occurrence and persistence of fraud. Since Queen Company has never written off any false sales after the deadline, which is a typical sign of deadline fraud, those auditors with many years of experience have not found any fraud in the company. The company decided to rent a warehouse far away from the company to store these worthless goods, and a subordinate of Hiram was responsible for destroying all documents and records that could reflect the return, including waybills, inventory lists, inventory return lists and so on. This trick once again worked temporarily.
In view of the fraud in this case, we put forward several measures in combination with information:
Attach importance to the investigation of the financial situation of senior managers.
When the customer business structure changes, we should strengthen our understanding of the customer business. Although the auditor has audited Queen Vacuum Cleaner Company for many years, great changes have taken place in the company since Mr. hiram took over. The traditional metal vacuum cleaner is no longer produced, but is replaced by a brand-new untested product, and all the company's income comes from this new product. Due to the drastic changes in the company's products, sales structure and personnel, today's company should be regarded as a company different from the previous Queen's company for auditors. Auditors should re-measure the impact of this change on enterprises under the existing sales structure. In the above case, if auditors notice that the so-called substantial increase in profits comes from new products, they will inevitably strengthen their investigation and cognition of this new product, so as to re-evaluate the audit risk.
On-site investigation and inquiry are essential. For auditors who audit manufacturing, retail and wholesale industries, on-site investigation and inquiry of their customers is particularly important. Any inventory item, whether delivery or receipt, can only be completed through the loading dock until the warehouse. Therefore, whether there is financial fraud in inventory must be concealed from key consignors. In the above cases, if the auditors spend more time on-site investigation when auditing inventory items, and skillfully ask the relevant personnel working in the warehouse about fraud and abuse of power, I believe it is not difficult to find out the fact that a large number of new products have been returned, thus further exposing the fraud of the company using the deadline to fabricate profits.
Make good use of analytical review. Faced with a large number of single boring figures, certified public accountants will inevitably feel confused. However, there are complex checking relationships behind these simple figures, which can often help certified public accountants to determine the rationality of statements. Once these check relationships are destroyed, it usually indicates that there are some unusual matters that need the attention of certified public accountants in order to better grasp the main contradictions and improve professional vigilance. For example, we have to confirm the income in advance, and often the goods have been invoiced before delivery, so the delivered quantity of the goods may be inconsistent with the invoiced quantity. Certified public accountants can verify the correctness of profits by testing the consistency of the two. In the above case, if the auditors of Audit Queen Vacuum Cleaner Company can use the same methods and guidelines, they may find that the storage cost of the company's rented warehouse has increased significantly, thus further suspecting that the returned inferior goods may not be reflected in the sales return, and the huge profits may just be a bubble.