Financial accounting individual - Summary China has gone...

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Summary China has gone through major economic innovation within two decades, but because of the fast changes, the rules and regulations of the accounting systems were not clearly settled and organized. This poor accounting system have created loopholes for companies to practice fraud for the stakeholders and became one of the major issues of China. This summary will be about some of the case studies about the accounting fraud practiced in China, the impact of these frauds to the stakeholders and to the China society. There are seven different cases shown about accounting fraud in this article. There are a few typical creative accounting and fraud shown in these seven different cases which are, inflating profit and assets, bribery, and embezzlement of raised funds. Zhengzhou Baiwen is the typical example of inflating profits and assets. The method that Baiwen chose in order to inflate its profit is to create fake sales. Firstly, Baiwen found a company that will allow them to record credit sales even though there wasn’t any transaction between these two companies. Then, Baiwen inflated its actual sales, which in 19.08 million RMB to 143.9 million RMB. Also, Baiwen carried out creative accounting which is to inflate account receivable from 49 million RMB to 911 million RMB. The effect of carrying out such a fraud is to attract and implement the idea to the stock buyers that their outstanding performance will eventually lead to profit for the stockholders and incite the stock buyers to purchase the stocks with high price even though the stock doesn’t carry any value.
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