How to identify enterprise accounting fraud)

Modern Risk-oriented Audit method is the development direction
In the case of false identification, the use of modern risk-oriented audit methods is its development direction. In 1990s, a modern risk-oriented audit method was formed on the basis of the transformation of traditional audit methods in order to better utilize the function of exposing accounting frauds. The Modern Risk-oriented Audit method applies the risk-oriented audit concept throughout the entire process. It gives compliance testing procedures and substantive testing procedures a broader connotation, the scope and content of the test are not limited to the accounting control system, but more focused on testing the business risk control, and determining whether to expand the scope and procedures of the substantive test based on the test results of the business risk.
The application of the Modern Risk-oriented Audit Method in China is still in its infancy. I believe that this method will have broad development prospects in the banking, accounting, taxation and other industries in the near future.
Searching exception information is an effective method
When identifying false information, finding abnormal information and in-depth analysis of potential risks is an effective means. If an enterprise is in a sustainable and stable State, its main financial data and financial indicators should show a sustainable and stable development trend. If the company's financial data and financial indicators change abnormally, the financial data and financial indicators deviate from each other, or seriously deviate from the industry average, or even deteriorate, it means that the company's operation has potential risks, these exceptions are important clues for identifying false accounting reports.
There are several steps to find the exception information. Step 1: understand the basic information of an enterprise, including the nature, development prospects, lifecycle, market share, competitive advantages, and business strategies of the industry in which the enterprise locates, And the scale, composition, and quality of its assets, the overall revenue, cost, and cost of the enterprise, and the development trend of various financial data and financial indicators of the Enterprise, to provide support for finding abnormal information.
Step 2: There is a certain internal relationship between accounting report items. For example, accounts receivable and main business income, main business income and cost, and main business income and net profit, there are some relationships between the main business cost and inventory, investment and income, borrowing and interest, net profit and tax burden, and according to the internal regularity of changes in financial data and financial indicators, find abnormal changes to account items, and review the real causes behind the changes based on the accounting method.
For example, the abnormal reduction of accounts receivable, the turnover rate of accounts receivable seriously deviated from the industry average, the increase of accounts receivable is less than the sales revenue, and even the decline of accounts receivable and the increase of sales revenue. Possible reasons are: first, the adjustment of enterprise credit policies shortens the credit period; second, the management of accounts receivable increases, and the recovery capability increases; the third is the transfer of accounts receivable to other subjects or accounting accounts; the fourth is debt restructuring; the fifth is the compression of accounts receivable, such as sale and divestiture; and the sixth is fictitious transactions and income, inflated monetary funds and sales revenue did not forge accounts receivable at the same time, while inflated monetary funds inflated inventory, construction in progress, fixed assets, and other hard-to-audit projects, when the cash flow of a business activity is increased, the cash flow of a business activity or the cash flow of an investment activity is increased, so that the inflated monetary funds can be digested.
Another example is that there is a positive correlation between fixed assets and accumulated depreciation, and there is a deviation between the two. as fixed assets increase, the accumulated depreciation decreases. Possible causes include: depreciation accounting is stringed into other subjects; disposal, sale, and retirement of fixed assets with a large depreciation amount, purchase a large number of new fixed assets at the end of the period, because no depreciation is accrued for the fixed assets purchased in the current period, the accumulated depreciation decreases as the fixed assets increase; the depreciation policy, depreciation rate, and depreciation period change; in order to increase the profit of the current period, we intentionally accrued less depreciation. We must question the exception information and launch new measures on the analysis of Accounts Receivable Management to conduct capacity tests to understand the changes in the company's depreciation policy, depreciation rate, and depreciation period, read the fixed asset purchase resolutions, approvals, and investment decisions of fixed assets to determine whether the company's interpretation of abnormal information is reasonable and prevent accounting frauds.
Carefully analyzes the cash flow statement to identify false flaws
In recognition of false information, carefully analyze the cash flow statement to identify false flaws. The cash flow statement reflects the source and destination of the cash flow, which is more accurate than the balance sheet and income statement. By analyzing the structure of cash flow, we can identify whether the company's cash flow mainly comes from business activities or depends on investment and financing.
If the company's cash flow is too much dependent on the income or borrowing from the disposal and sale of operating fixed assets, the company's continuous operation ability and profitability are not optimistic. By analyzing the trend of cash flow, we can identify the profitability of an enterprise. Companies with fictitious transactions and profits, the balance sheet and income statement show considerable net profits. However, the net increase in cash flow is very low, and the inflow of cash flows in business activities lags behind the net profit for a long time. This greatly deviates from the main business income, and the profit does not have the corresponding cash flow support. The profit quality is worrying. By analyzing the ratio of cash flow, you can identify the true solvency of an enterprise after removing virtual assets.
Pay attention to accounting report-related materials
Focusing on Accounting Report-related information is one of the ways to effectively identify false accounting information. Carefully read the description of enterprise accounting policies and accounting methods, especially the income confirmation, inventory valuation, investment accounting methods, consolidated statements, accrual of impairment provision for various assets, and income tax accounting methods, the impact of changes in accounting policies, accounting estimates, and accounting errors on profits, the basic information of the controlling subsidiary and the joint venture, the description of matters after the balance sheet, the description of related relationships and transactions, description of asset transfer and sale, documents and resolutions related to enterprise merger, separation, reorganization, external guarantee, litigation and business strategy adjustment, etc.
In short, there are many ways to identify enterprise accounting frauds. In addition to the basic false identification elements, enterprises must collect information from different parties and analyze the information in a timely and in-depth manner, in this way, we can comprehensively set off the head of enterprise accounting fraud.