What Are the Signs of Financial Abuse?

The performance of false financial statements is divided into adjustment of profits through related transactions, adjustment of revenue recognition methods, manipulation of profits, misuse of accounting estimates, use of other receivables and other payables to adjust profits, and thus the concept of virtual assets.

False financial statements

Right!

false

False financial statements are a relatively common phenomenon in China.

1. Adjust profits through related party transactions

The main ways to adjust profits using related party transactions include:

(1) Purchase and sale activities, asset replacement and

1. Analysis of the source and time structure of profit

I. Review of raw materials

Raw materials, as the main component of inventory, are an important part of the company's current assets, and also an important way for companies to hide losses and increase profits falsely. They are often used to make a fuss. Because the fraud on the raw materials, the form is more hidden, and it is not easy to find. There are several ways to falsify raw materials:

1. Some raw materials consumed in production are not accounted for in the warehouse, and are not accounted for in production costs. When the amount is small, the change of raw materials is not obvious, and it is not easy to attract the attention of auditors. When the amount is large, it will cause a significant false increase in raw materials in inventory, which is reflected in the financial statements. increase. For such abnormal changes, auditors are generally easier to find when performing an analytical review of the accounting statements. However, the practices of some companies are more subtle, which makes it difficult for auditors to detect problems in a timely manner. This is the second method.

2. On the one hand, some raw materials consumed in production are not accounted for in the warehouse and are not recorded in production costs. At the same time, raw materials that have not been invoiced for purchase and inspection of the warehouse are not valued, or less valued. This method of entering and leaving raw materials is not accounted for. The year-end balance of raw materials in the accounting statements is adjusted so that it does not change much compared with the balance at the beginning of the year. For example, a company's raw material inventory at the end of the year is 19 million yuan, and the raw material inventory at the end of the previous year is 14 million yuan. Compared with the two, the change seems to be normal. However, the audit found that the unit consumed 15 million yuan of raw materials that should be counted but not included in the cost of the product. At the same time, the raw materials that have been stored have not been valued and accounted for 12 million yuan. The effect of the amount is minimal.

Because this method has no abnormal changes in the raw materials, auditors often do not take it as the focus of the audit when performing analytical reviews, which is easy to blind them. To find such a more insidious method of fraud, not only the auditors must have high professional quality and rich auditing experience, but also need keen professional judgment.

First of all, at the stage of audit investigation, it is necessary to have a basic understanding of the entire state of the industry to which the audited unit belongs, understand the profitability of the same industry, the external competitive environment, etc., and analyze the inherent risks that affect the authenticity of corporate statements. Compare the average unit cost of the audited unit with the average cost of the industry unit. Assume that the average cost of the industry unit is about 80 yuan, and the average unit cost of the audited unit is only 50 yuan. At this time, the auditor should be aware of the The cost is largely unreal, and there may be a phenomenon that the large amount is reduced to the cost.

Secondly, the monthly unit cost of the main products of the audited unit is compared vertically, and the average unit cost of the current year is compared with the average unit cost of the previous year. Any changes in unit costs should cause the auditors to pay great attention. For example, the unit cost of the audited unit in the first six months was around 80 yuan, but the unit cost in July was only 58 yuan, so there may be less material transfer and false production costs. For another example, the unit cost of the unit under review last year was about 50 yuan. In the market environment where the price of raw materials rose sharply this year, the unit cost of the report product was only 52 yuan. According to the professional judgment of the auditors, this situation often indicates that the unit cost of the product of the company in that year is not real, and there may be cases where the large amount of raw materials consumed does not enter the cost.

3. There are also some enterprises. The accounting treatment of cost accounting in the first few months or even from January to November is normal, but when it is found that the losses are serious in the later period or the end of the year, it is necessary to hide the operating losses and whitewash the accounting statements. The approach adopted is: the raw materials or auxiliary materials that have been consumed in production and the financial outbound storage is recorded as production costs at the end of the year or when other needs are required to handle the false return of the inventory, thereby artificially reducing product costs. The review of this situation requires that the auditors, when reviewing the detailed accounts of raw materials and auxiliary materials, rush back to the business for each return to the warehouse, verify, analyze, and inquire one by one, and check with the warehouse management personnel to Verify the authenticity of the return business.

Review of finished products

1. Loss of product damage, damage, etc. will not be accounted for during the year. When there is evidence to prove that the value of the product has fallen or been damaged, that is, the loss has occurred, the loss should be confirmed in a timely manner. In order to reduce the loss for the current year, the audited unit will postpone the loss until the next year or later. The auditor shall combine the monitoring of the finished product and inventory with the audit of the inventory depreciation reserve to check whether there is inventory that has been reduced in value without the provision for impairment and whether the provision for impairment is sufficient.

2. If the product is not sold, an invoice is issued in advance, and the main business income needs to be increased. For example: the order from the customer at the end of December, although it cannot be shipped within the year, it is listed as sales first. The sign of the sale is that ownership of the goods has been transferred from the seller to the buyer. Regardless of the method of delivery, the seller must have actually shipped the goods to be considered a sale. If the auditor suspects that this is the case, when monitoring the inventory of the enterprise, pay attention to whether there is inventory that has been listed for sale but is still stored in the audited unit, or on-site to the warehouse to inventory the inventory to confirm the existence of false invoices. 2. Increasing sales without moving inventory. In addition, check the sales records at the end of the year with the actual delivery or outbound orders to find out if they match. When necessary, go to the site to check the production records of the workshop, measure the product output, and check the physical objects with the books.

Third, the review of the packaging

When auditing some small units, the review of the packaging is often not the focus of the auditor's audit, but when auditing some large manufacturing enterprises, the review of the packaging cannot be ignored. When reviewing the packaging, the auditors must be good at discovering the abnormalities of the packaging from the detailed account while obtaining the physical inventory of the audited unit. Because the year-end inventory tables provided by the audited unit to the auditors are often consistent with the financial accounts. For example, there are 8,450 wooden book balances in a unit's packaging, with an amount of 2.36 million yuan, and the actual inventory count is 8,450. When the auditors reviewed the monthly purchase and use of the unit's wooden crates this year, they found that the number of wooden crates that normally meet production needs is about 4,000 per month, and 450 normal wooden crates balance from January to December, and the remaining 8,000 The number of wooden boxes carried over from the previous year. Auditors can therefore initially judge that there are abnormalities in wooden boxes, because under normal circumstances, it is impossible for an enterprise to take up production working capital to hoard 8 000 wooden boxes belonging to fragile items. So the auditors went to the scene to carry out an inventory check and verified that the actual wooden box of the unit was only 450, with a loss of 8,000 and a total amount of 2.24 million yuan. After further examination and inquiry, the inventory loss wooden box occurred in the previous year. In order not to increase the loss for the current year, the inventory loss account was not processed.

Examination of operating expenses and management expenses

When reviewing operating expenses and management expenses, auditors usually take the auditing procedures of various expenses as sound and effective, and whether the contents of the expenses are reasonable and legal. What they do. However, in actual economic activities, some companies are just thinking about these easily overlooked expenses.

Before the auditors determine the audit focus of operating expenses and management expenses, they need to conduct a preliminary analytical review of them and find abnormal changes therein. If there is a significant decrease in the amount of expenses in the current year compared with the same period of the previous year, or even no longer occurs, the auditor must find out the reason for the substantial decrease in expenses, whether the expenses are normally reduced or hidden expenses.

1. Part of the large expenses incurred by the enterprise is posted to the account of prepaid accounts. This requires the auditor to check the authenticity of the prepaid account, and to check whether there is any abnormality in the content of the prepaid account and the receiving unit, whether the money has been paid, but there has been no business transaction. If necessary, verify the prepaid account to verify the authenticity of the prepaid account.

2. Add the actual expenses incurred to other receivables in the form of loans.

In order to reduce expenses and increase profits falsely, some enterprises charge other receivables as actual borrowings. There are usually two ways: one is to first pay a large amount in the form of personal borrowing and use it to pay various expenses in the name of an individual. Expenses have actually been incurred, and the invoices are kept in the hands of the borrower, but are not reported. The other is to temporarily exclude the expenses that have actually occurred in operating expenses or management expenses, but to suspend a certain unit or person who does not exist for other receivables. The review of the above-mentioned fraudulent activities needs to be combined with the review of other receivables-reserve funds, especially if the amount of personal loans at the end of the year is not cleared. It should be the focus of the audit. When the auditors have doubts about it, they can take the parties Investigation, inquiry and other audit procedures to verify the authenticity of personal loans. At the same time, for foreign unit loans, a loan contract should be obtained and verified to verify the authenticity of the loan.

Li Wei. Auditing Techniques for False Financial Statements. Auditing and Financial Management 2007 No.8