Detecting fraud in Chinese listed company balance sheets

Yi Wei, Jianguo Chen and Carolyn Wirth

Pacific Accounting Review, 2017, vol. 29, issue 3, 356-379

Abstract: Purpose - This paper aims to investigate the links between accounting values in Chinese listed companies’ balance sheets and the exposure of their fraudulent activities. Design/methodology/approach - Every balance sheet account is proposed to be a potential vehicle to manipulate financial statements. Findings - Other 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/value - Previous 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.

Keywords: China; Accounting ratios; Fraudulent statements (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:par-04-2016-0044

DOI: 10.1108/PAR-04-2016-0044

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