The Chinese Institute of Certified Public Accountants, Audit Technique Reminder No. 1: Financial Fraud Risks

Issued: July 31 2002
Applicability: The Reminder is not part of the practice guidelines or practice rules and is only for reference.

Main contents: The Reminder draws the attention of certified accountants to the factors that may cause a company to practice financial fraud or that may indicate risks of financial fraud in the company. These factors are grouped into nine categories: (1) the financial stability or profitability of the company is threatened (e.g. drastic change in market environment); (2) the management is under unusual pressure (e.g. unreasonable expectations from major shareholders); (3) the management is driven by personal economic interests (e.g. performance-linked management remuneration); (4) the company is in a special sector or has a special business nature (e.g. high-tech); (5) there are special transactions or affairs (e.g. major affiliated transactions); (6) corporate governance is defective (e.g. powerless independent directors); (7) internal control is defective (e.g. incompetent accountants); (8) the management shows bad attitude or bad faith (e.g. management non-compliance record); and (9) there is an unusual or tense relationship between the management and the certified accountant (frequent change of accounting firms).