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Detecting fraud in Chinese listed company balance sheets

Detecting fraud in Chinese listed company balance sheets PurposeThis paper aims to investigate the links between accounting values in Chinese listed companies’ balance sheets and the exposure of their fraudulent activities.Design/methodology/approachEvery balance sheet account is proposed to be a potential vehicle to manipulate financial statements.FindingsOther receivables, inventories, prepaid expenses, employee benefits payables and long-term payables are important indicators of fraudulent financial statements. These results confirm that asset account manipulation is frequently carried out and cast doubt on earlier conclusions by researchers that inflation of liabilities is the most common source of financial statement manipulation.Originality/valuePrevious practices of solely scaling balance sheet values by assets are revealed to produce spurious relationships, while scaling by both assets and sales effectively detects fraudulent financial statements and provides a useful fraud prediction tool for Chinese auditors, regulators and investors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

Detecting fraud in Chinese listed company balance sheets

Pacific Accounting Review , Volume 29 (3): 24 – Aug 7, 2017

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0114-0582
DOI
10.1108/PAR-04-2016-0044
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to investigate the links between accounting values in Chinese listed companies’ balance sheets and the exposure of their fraudulent activities.Design/methodology/approachEvery balance sheet account is proposed to be a potential vehicle to manipulate financial statements.FindingsOther receivables, inventories, prepaid expenses, employee benefits payables and long-term payables are important indicators of fraudulent financial statements. These results confirm that asset account manipulation is frequently carried out and cast doubt on earlier conclusions by researchers that inflation of liabilities is the most common source of financial statement manipulation.Originality/valuePrevious practices of solely scaling balance sheet values by assets are revealed to produce spurious relationships, while scaling by both assets and sales effectively detects fraudulent financial statements and provides a useful fraud prediction tool for Chinese auditors, regulators and investors.

Journal

Pacific Accounting ReviewEmerald Publishing

Published: Aug 7, 2017

References