What are the common methods of modifying accounting statements?

1. Use asset reorganization to adjust profits

Asset reorganization is an asset replacement and equity replacement implemented by enterprises in order to optimize capital structure, adjust industrial structure, and complete strategic transfer. However, asset restructuring has been so widely abused that when it comes to asset restructuring, people immediately think of false accounting. In recent years, in some enterprises, especially listed companies, asset restructuring has indeed been widely used to whitewash accounting statements. It is not difficult to find that the secret to many listed companies turning losses into profits lies in asset restructuring. Typical methods are: (1) With the help of related transactions, unlisted state-owned enterprises replace the inferior assets of listed companies with high-quality assets; (2) Unlisted state-owned enterprises sell subsidiaries with higher profitability to listed companies at a low price; (3) Listed companies sell some idle assets to unlisted state-owned enterprises at high prices.

For example, XX Joint-stock Company sold land use rights of 69.26 million yuan to the parent company for 219.26 million yuan in xx, confirming a profit of 150 million yuan; at the same time, it transferred the overall property rights of an affiliated enterprise (Net book value 14.54 million yuan) was sold to the parent company at a price of 94.14 million yuan, and a profit of 79.6 million yuan was recognized. The total profit from these two asset restructurings totaled 229.6 million yuan.

For another example, in June XX, XX Co., Ltd. priced its 40% equity in Shanghai XX Co., Ltd. with a book value of US$560,000 at a price of RMB 40 million to conduct equity swaps with its affiliates. This equity swap transformed the joint-stock company's non-performing assets of US$560,000 into high-quality assets of 40 million yuan. This alone increased the company's income by more than 35 million yuan, not only making the company exempt from tax in the first half of XX Due to the loss, and after making up for the loss of 25.58 million yuan in the previous year, a considerable portion of distributable profits can still be left.

Asset restructuring often has the miraculous effect of turning listed companies from losses to profits overnight. The "secret recipe" is to use the time difference, such as conducting major asset sales before the end of the accounting year to confirm huge profits; Equivalent exchange, that is, with the help of related transactions, the profit transfer of "garbage for gold" is carried out between a listed company and its unlisted parent company.

2. Use related transactions to adjust profits

Many listed companies in my country are reorganized from state-owned enterprises. When the stock issuance quota is limited, listed companies often use partial control of state-owned enterprises to Established in a reorganized manner. After the joint-stock reorganization, there are generally complicated related relationships and related transactions between the listed company and the parent company before the reorganization and other subsidiaries controlled by the parent company. Using related transactions to embellish accounting statements and adjust profits has become a "game" that listed companies enjoy.

The main methods of using related transactions to adjust profits include: (1) fictitious economic business and artificially inflate the business and efficiency of listed companies. For example, some joint-stock reorganized enterprises use their main business income and profits to "reborn" by selling their goods to their affiliated companies at high prices because their main business income and main business profits do not reach 70%. (2) Use methods that are significantly higher or lower than market prices to conduct purchase and sale activities, asset swaps and equity swaps. Such as the asset reorganization case cited above. (3) Entrust operations or entrust operations to ensure harvests during droughts and floods to improve the operating performance of listed companies. For example, XX Co., Ltd., which has been widely reported in securities newspapers recently, contracted to operate a farm from an affiliated enterprise at a cost of 8 million yuan, and made a profit of 72 million yuan in less than a year. (4) Capital transactions occur at low or high interest rates to adjust financial expenses. For example, XX Co., Ltd. lent 1.2 billion yuan of funds (accounting for 69% of its total assets) to its affiliated enterprises. Although we are not sure whether its capital lending rate is reasonable, one thing is certain. The profit of this joint-stock company mainly comes from the interest income from fund transactions with affiliated enterprises. (5) Adjust profits by collecting or paying management fees, or sharing *** expenses. For example, in XX, XX Group Company borne more than 45 million yuan in advertising fees for the listed companies it controlled. The reason was that the listed companies’ advertising It also helps to enhance the corporate image of the entire group.

The fifth characteristic of using related-party transactions to adjust profits is that large losses can become large profits overnight, and the profits from related-party transactions are mostly reflected in "other business profits", "investment income" or " "Non-operating income", but the "windfall" earned by listed companies through related transactions is often intermittent and does not usually mean a substantial change in the profitability of listed companies. Another characteristic of using related transactions to adjust profits is that the result of the transaction is that the profits of unlisted state-owned enterprises are transferred to listed companies, resulting in the loss of state-owned assets.

3. Use asset evaluation to eliminate potential losses

According to the provisions of the accounting system and the principle of prudence, the potential losses of an enterprise should be reflected through the income statement in accordance with legal procedures. However, many enterprises, especially state-owned enterprises, often recognize potential losses such as bad debts, slow-moving and damaged inventory, long-term investment losses, fixed asset losses, and deferred assets through asset evaluation during joint-stock restructuring, external investment, leasing, and mortgages. Assess impairment and offset "capital reserve" to achieve the purpose of whitewashing accounting statements and inflating profits.

For example, when a state-owned enterprise was reorganized into a listed company in xx, the net profits reported in xx, xx and xx were 28.5 million yuan, 33.75 million yuan and 43.12 million yuan respectively. The audit found that: (1) Among the accounts receivable in xx, xx and xx, the accounts were aged for more than 3 years and were hopeless to be recovered, totaling 75.63 million yuan; (2) The expired and deteriorated inventory caused a loss of approximately 30 million yuan. ; (3) Deferred assets include overdue and unamortized exchange losses to be written off of RMB 11.5 million. If these factors are taken into account, the company has not made profits continuously in the past three years and does not meet the listing conditions at all. For this reason, the company took the asset appraisal carried out during the joint-stock restructuring as an "opportunity" to treat all these potential losses as asset appraisal impairments, offset by the appraisal appreciation of fixed assets and land use rights of 186.8 million yuan, making it still in the past three years. Reflect high profits, thereby achieving the purpose of smooth listing.

4. Use virtual assets to adjust profits

According to international practice, assets refer to resources that can bring future economic benefits. Projects that cannot bring future economic benefits, even if they meet the requirements of accrual accounting and are listed on the balance sheet, are not assets in the true sense, strictly speaking, thus giving rise to the concept of virtual assets. The so-called virtual assets refer to expenses or losses that have actually occurred, but are temporarily listed as deferred expenses, deferred assets, pending losses on current assets, and pending fixed asset losses due to the lack of affordability of the enterprise. Using virtual asset accounts as a "reservoir" to fail to recognize in a timely manner and under-amortize the expenses and losses that have already occurred is also a common method used by state-owned enterprises and listed companies to whitewash their accounting statements and create false profits and real losses. Its "legal" excuses include the accrual basis, the principle of matching revenue and costs, and instructions from local financial departments.

For example, XX Co., Ltd. reported a net profit of nearly 20 million yuan in xx. However, according to the approval of the local financial department, the company will have incurred depreciation expenses, administrative expenses, tax refund losses, and interest expenses. A total of approximately 140 million yuan is listed as "deferred assets". If these two factors are taken into account, XX Co., Ltd. actually suffered serious losses.

5. Use interest capitalization to adjust profits

According to the provisions of the current accounting system, the interest expenses paid by enterprises for long-term assets such as projects under construction and fixed assets are included in these long-term assets. These long-term assets can be capitalized before they are put into use. The capitalization of interest is originally based on the principle of income and cost matching and the requirement to distinguish between capital expenditures and operating expenditures. However, in actual work, many state-owned enterprises and listed companies abuse the provisions on interest capitalization and deliberately adjust profits.

*2 The representative of safety is Yu Taibai. The company capitalized RMB 80.64 million in borrowings and bond interest payable during the construction of the titanium dioxide project even though the project had been put into use. As a result, a certified public accountant issued a negative audit report and opened a listed company in my country. It was the first time that an audit report with a negative opinion was issued.

A more secretive method of using interest capitalization to adjust profits is to use the fact that it is difficult to define own funds and borrowed funds, and artificially delineate the source of funds and the purpose of funds to use them for non-capital expenditures. Capitalization of interest.

6. Use equity investment to adjust profits

Since my country’s property rights trading market is still very underdeveloped, the accounting standards for equity investment are still in the development stage. There are many state-owned enterprises and listed companies. Companies use equity investments to regulate profits. In addition to taking advantage of the opportunity of asset restructuring and using related transactions to exchange non-performing equity investments with related companies at sky-high prices to obtain "huge profits", there are also many state-owned enterprises that use the cost method and equity method to whiten their accounting statements. A typical approach is that for profitable investee companies, the equity method is used for accounting, while for loss-making investee companies, cost accounting is still used even if the equity ratio exceeds 20%.

In recent years, some listed companies, under profit pressure, often sign equity transfer agreements with affiliated companies at the end of the fiscal year, and transfer the entire acquired company to the company based on the equity method or through consolidated accounting statements. The annual profits are included in the accounting statements of listed companies. Fortunately, the Accounting Department of the Ministry of Finance has issued a notice clearly stipulating that when equity is transferred, the acquiring company can only use the profits realized from the acquired company before the acquisition date as the acquisition cost, and the acquiring company is not allowed to recognize it as investment income. This regulation will undoubtedly inhibit state-owned enterprises and listed companies from using equity investment to adjust profits and whitewash accounting statements.

7. Use other receivables and other payables to adjust profits

According to the current accounting system, other receivables and other payables are mainly used to reflect the Other amounts other than payments, prepaid accounts, accounts payable, and accounts received in advance. Under normal circumstances, the closing balance of other receivables and other payables should not be too large. However, during the audit process, we found that many state-owned enterprises and listed companies have huge closing balances of other receivables and other payables, which are often not consistent with the balances of accounts receivable, prepaid accounts, accounts payable and advance receivables. Up or down, or even exceed the balance of these accounts. The reason for these abnormal phenomena is mainly because many state-owned enterprises and listed companies use these two accounts to adjust profits.

In fact, the CPA profession has nicknamed these two items "trash can" (because other receivables are often used to hide potential losses) and "cornucopia" (because other receivables are often used to hide profits).

8. Use time differences (across years) to adjust profits

In order to give shareholders a "satisfactory" answer after the end of the year, some listed companies often use time differences to adjust profits. The traditional approach is to issue false invoices in December and charge them back the following year on the grounds of substandard quality. A smarter approach is to confirm revenue in advance by signing an agreement with a third party to "sell out" the income rights. For example, XX Co., Ltd. signed an agreement with a U.S. company on December 5, XX, to purchase a batch of hardware and software from the U.S. company for 35 million yuan. At the same time, the U.S. company agreed to purchase development software for 120 million yuan. The contract stipulates that the delivery time for the software produced is June and September of XX, and it will be accepted after quality appraisal in December of XX. On December 25, 2009, the listed company signed an agreement with a foreign trade company to "sell out" the software at a price of 96 million yuan, while confirming a profit of 51 million yuan. Since the joint-stock company has not yet provided goods or services, and the risks and rewards have not yet been transferred, the determination of the above-mentioned income is obviously untenable. Even if the agreement signed with the foreign trade company is established, the 96 million yuan can only be used as an advance payment. Only in June and September of XX can the income be gradually recognized based on the goods or services provided. It can be seen that the listed company is essentially using the so-called "agreement" with the foreign trade company to make multi-year profit adjustments.