Chinese Listed Companies' Financial Fraud

Chinese Listed Companies' Financial Fraud

-----------Taking Yunnan Green Land Biological Technology Co. Ltd as an Example

With the rapid growth of Chinese stock market, a series of financial fraud crimes come along. This report will take Yunnan Green Land Biological Technology Co. Ltd as an example in the following discussion about business ethical issue and accounting.

Founded in March 2001, Yunnan Green Land Biological Technology Co. Ltd. During 2004 to 2009, in the absence of an initial public offering and listing of conditions, Green Land registered a group of companies that were actually controlled by Green Land. Green Land signed fake contracts with these companies, to create high revenues and profits. ^[1]The SCF group has been investigating the company since 2010. Last year, Green Land was sentenced to a fine of 10.4 million RMB and president He Xuekui was sentenced to 10 years of imprisonment.

The ethical issue faced by internal accountants is whether they should draw up false accounts for the company. In this case, the Green land increased its revenue by 296 million RMB through false seedling sales, and retrieved the money after the deal. Hua Yuan Accountancy Firm not only made up corresponding accounting book, but also included the number in the prospectuses. The ethical issue for the auditor is whether to follow strict rules in auditing process. In this case, Shen Zhen Peng Cheng Accountancy Firm was clearly careless. Considering some personal relationships, the SCF even suspected that the firm neglected the fraud on purpose. The last ethical issue is for the sponsor agency, which is whether to conduct a thorough investigation against the company before recommendation.

There are many other ways in committing financial frauds for listed company in China, and Green Land is just a very classic and severe example. The common thing about these frauds, despite the technical approaches, is that they all break the five fundamental principles of accounting, which are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior. ^[2]In this case, the two accountancy firms obviously violated the integrity and objectivity principle by helping the Green land make and use unreal data.