Chinese Accounting Scandal. In this article, seven typical accounting scandals of Chinese companies between 1992 and 2000 are concerned and examined

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1. Summary

Due to the loopholes in the legal and accounting systems, accounting frauds were prevalent in the business world in the last decade of 20th century. In this article, seven typical accounting scandals of Chinese companies between 1992 and 2000 are concerned and examined including Shenzhen Yuanye (SY), Great Wall Fund Rasising (GWFR), Hongguang (HG), Daqing Lianyi (DL), Kangsai Group (KG), Lantian Gufen (LG) as well as Zhengzhou Baiwen (ZB). Besides, their causes, consequences and implications for accounting, law and corporate governance are identified, discussed and explored respectively.

From the analysis of the seven accounting scandals, the kinds of fraudulent behaviors can be classified into three aspects (Table 1). Commonly, the management aims to meet the listing requirements and seek personal gains. In the other words, publicly raised funds are misappropriated in the ways not originally purported. Secondly, company’s cash is embezzled by management for personal purposes. Thirdly, in order to meet the listing requirements and conceal the immoral management behaviors, accounting fabrications are undertaken to dress a “beautiful” financial performance as well as financial position.

In the Zhengzhou Baiwen’s scandal, the company obtained a stock exchange listing by falsifying its financial statements through six types of deliberate and unjustifiable accounting treatments embracing inflating sales, recognizing gains on sales of fixed assets to related-party, capitalizing expenses, deferring recognition of expenses, excluding bad debt provision and overstating assets.

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Regarding the implications derived, insufficient corporate governance, unsatisfactory quality of accounting and auditing professionals, impotent regulations in initial public offerings, faulty information disclosure requirements and inadequate protection of investors’ rights would be the emergent issues in China’s business world nowadays. Thus, four kinds of advices are proposed by author. Internally, the roles of supervisory board and independent directors should be stressed. Externally, the independence and moral of auditors should be emphasized. In addition, timely and reliable information disclosure by companies and investors’ lawsuit legalization should be developed.

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Undoubtedly, the aforementioned corporate accounting ...

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