Analysis Of Tax Evasion By Clothing Company Limited -- Comment On "Substantial Taxation Doctrine"

R watts and J Zimmerman, a famous accounting scientist at University of Rochester, point out that accounting is the product of the change of ownership structure and is intended to supervise the signing and execution of enterprise contracts.

The development of productive forces has led to the split of property rights and the separation of ownership and management rights. At the same time, an organizational mechanism that reflects the separation and integration of capital ownership and management rights has been generated, which is compatible with the modern enterprise system.

Managers exercise their management rights, direct command and control of enterprises, accounting departments and their accounting and reporting activities, and have sufficient internal information. Large shareholders are able to obtain more detailed and reliable information from the enterprises and supervise the managers by virtue of their advantages. Managers and major shareholders control the generation and disclosure of accounting information as managers of the company. Small shareholders are far from the ultimate control of enterprises because of their small shareholding ratio. Their management and management of enterprises are completely outsiders. They are innate in the possession of accounting information. They can only obtain information from indirect ways to supervise the performance of managers and major shareholders, which is the demand side of accounting information.

It is in order to adapt to the strong demand for accounting information of numerous and dispersed small and medium-sized investors, the listed companies use public disclosure to provide financial statements.

However, under the separation of the two powers, there is an objective contradiction between the interests of owners and managers, between large shareholders and small shareholders.

In the case of asymmetric information, managers and major shareholders are motivated to take advantage of their information superiority to gain advantage for themselves and directly manipulate financial reports, so as to unfairly encroach on the interests of small and medium shareholders, thus leading to fraud in financial reporting.

Therefore, it can be said that the inconsistency of interests is the economic incentive for false financial reports, and information asymmetry is the objective environment of false financial reports.

The motivation of information providers' egoism is universal and difficult to fundamentally eliminate, but motivation does not necessarily plate into real behavior.

If fraudulent information providers can be effectively supervised to make the counterfeiting behavior unrealistic and uneconomical, the counterfeiters will give up cheating in rational trade-off.

However, at present, there are many misunderstandings in the supervision of accounting information in China, which seriously reduces the efficiency of supervision and makes financial reporting fraud become a reality.

Therefore, we can say that there are many misunderstandings in the supervision of accounting information, which is the realistic basis for the existence of false financial reports.

A clear understanding of these misunderstandings helps to build a complete regulatory mechanism.

One of the misconceptions: first, attach importance to "single" supervision and neglect the "comprehensive" supervision.

Independent auditing is the cornerstone of the development of the securities market, as well as the institutional arrangement to ensure the true financial reports of listed companies.

However, independent auditing is only an external institutional arrangement to ensure the quality of accounting information of listed companies. It is only a link in the chain of supervision of financial reports. Only by means of other means of supervision can its role be brought into full play.

Since the beginning of the fraud in the securities market, China has strengthened the supervision of the securities audit market, such as the promulgation and implementation of the independent auditing standards in 1996, the accounting firms began to decouple and Reform in 1998, and the merger and reorganization of KG in 2000. In 2001, a series of policies and measures closely related to the certified public accountants with securities and futures business qualifications were issued in succession.

Thus, there are some misconceptions in the supervision of regulators: regulators try to regulate the false financial reports of listed companies through the supervision of certified public accountants.

Overly exaggerating the role of independent auditing in false financial reporting.

In fact, the fraud in the securities market is a complex group behavior, and the improvement of the accounting information quality in the securities market is a comprehensive process.

Internal corporate governance, public opinion supervision and legal sanction of listed companies are indispensable links in the entire supervision chain. Relying solely on independent auditing is not effective. It must be implemented in a comprehensive way. False financial reporting in securities market is not a matter of grasping several CPA, and closing several firms can solve the problem.

Misunderstanding two: attach importance to "rigid supervision" and ignore "flexible" education.

The securities market is a gambling arena full of opportunities and temptations. It is necessary to restrict and deter participants and regulators through institutional arrangement, but the stacked system does not necessarily achieve good regulatory effect.

China has promulgated, implemented and revised accounting standards and auditing standards since 90s, but false accounting information has never been eliminated.

Finally, the system needs people to carry out.

If securities market participants and regulators do not speak integrity, institutional arrangements will appear powerless.

When a huge amount of economic interests collide with serious moral norms, only the subtle education of integrity can make the scales tend to be moral norms.

Therefore, it is not enough to rely solely on institutional arrangements for such rigid supervision. We must attach importance to the "integrity" education, and it should be a full range of integrity education, including not only the participants in the securities market such as intermediaries, individuals and investors, but also the supervisors in the securities market such as government regulators and news media.

Misunderstanding three: attach importance to administrative sanctions and despise civil compensation.

In China, since the launching of CPA audit business, litigation cases involving CPA auditing have occurred frequently. Most of the accounting firms and CPA involved in China are mainly administrative penalties.

Although the severity of the punishment has been increased after the restructuring, the punishment for the CPA has become more and more serious, and even the criminal liability has been investigated. However, there are few cases about the civil liability of CPA auditing.

The result of this punishment is not enough to shake the audit profession.

Because fraud is punished and the probability of ordering compensation is very small, the cost of counterfeiting is still far lower than that of counterfeiting. The practice risk of Certified Public Accountants has not been substantially improved, nor can it save investors' losses.

The rational thinking of the supervision of false financial reports is not only a product of high quality accounting and auditing standards, but also relies on a supportive basic mechanism to ensure that the guidelines can be strictly understood and applied.

Only by establishing a mature and effective regulatory mechanism to ensure the authenticity of the final disclosure of financial reports can the small and medium investors make the right investment decisions by using these real accounting information and avoid the infringement of the interests of the major shareholders and the managers to the maximum extent.

1) to improve the corporate governance mechanism, establish an effective internal balance and restraint system, and improve the independent director system (1) to standardize the selection and appointment mechanism of independent directors.

Ensuring the independence of independent directors is the key to the implementation of the independent director system and the vitality of the independent director system.

The key to ensuring "independence" lies in the selection and appointment mechanism of independent directors.

If we hope that the independent directors can truly protect the rights and interests of minority shareholders, we must build an independent director mechanism by small and medium shareholders.

However, the guidelines issued by the SFC in 2001 on the establishment of an independent director system of listed companies clearly stipulates that "shareholders of listed companies, board of supervisors, board of supervisors, and those holding more than 1% of the issued shares of listed companies individually or jointly may submit candidates for independent directors."

This provision is similar to declaring that the majority shareholder still controls the legitimacy of the independent director.

Therefore, it is still difficult to construct the independent directors in small shareholders in our country at present. However, as a pition, we should appropriately restrict the nomination rights of the independent directors of the major shareholders and the shareholders represented by the executive directors.

(2) the selection of independent directors.

Independent directors must have corresponding qualifications and conditions.

At present, the independent directors of some listed companies are mainly employed by the competent government departments or board of directors or chairmen. The appointment of directors and directors of directors is very serious, which makes the independent directors' right to know and working hours not guaranteed, and these people may not be "Directors".

In my opinion, we should choose those who have no worries in the economy, have a high sense of social responsibility on the personality, and have professional competence as directors, and establish an independent director file management system.

(3) regulate the rights and responsibilities of independent directors.

Giving independent directors independent power and responsibility is conducive to improving their independence.

The guiding opinions stipulate that in addition to giving independent directors the authority to give the directors the company law and other relevant laws and regulations, the listed companies should also give independent directors special authority and independent opinions.

The author believes that in order to strengthen the sense of responsibility of independent directors, we should make clear that the independent directors exercise special rights and express their independent opinions as both rights and obligations. Independent directors must exercise their authority and express their independent opinions, not only "should", but also disclose the independent directors' rights and responsibilities in the annual reports of listed companies.

In addition, from the legal level, it is necessary to amend the relevant laws and regulations, clarify the rights and responsibilities of independent directors, coordinate the rights and responsibilities of independent directors and supervisors, coordinate the relationship between independent directors and board of supervisors, so that independent directors can be legally operated.

(4) establish an incentive mechanism for independent directors.

Independent directors are also "economic men", and there are incentive problems. They need to identify who will evaluate the performance of independent directors, how to evaluate, how to reward and punish and so on.

At present, the independent directors' performance evaluation mechanism has not yet been established, which is also a reason why the independent directors have failed to play a role.

The author believes that the incentive mechanism of independent directors must consider the "independent director reputation mechanism" as a self-discipline moral constraint. Once the independent directors show their due independence and objectivity in the listed companies, they will protect and enhance their reputation and expand their market.

We should standardize the internal control system, (1) improve the internal control standard system.

At present, the internal control standard of our enterprises lacks a forming system.

With the basic norms of internal accounting control, the promulgation and implementation of specific norms of monetary funds and the promulgation of other specific norms, a more complete normative system will be formed in internal accounting control. However, at the operational level, there are still quite a lot of tasks.

At present, many of the norms are very principled and practical.

The absence and invalidation of norms will affect the effectiveness of norms.

(2) to strengthen the control of "human" in the internal control behavior subject, and implement the internal control work.

It is useless to draw up a good management system and control measures without people's active role.

Personnel quality control includes: knowing others and improving their responsibilities; strengthening professional ethics education for employees, especially accountants, setting up technical rotation training system, improving staff's professional ethics and technical quality, establishing staff's technical assessment and performance evaluation system, establishing reward and punishment system, and establishing job rotation system.

(3) establish a good information communication system to improve the effectiveness of internal control.

It includes: affirming and recording all effective economic activities; recording economic business at any time, so as to properly classify and provide accounting reports; use appropriate monetary value to measure economic business; determine the period of economic operation, and ensure that economic pactions are recorded during a reasonable accounting period; and financial business is appropriately indicated in financial reporting.

(4) improve the way of internal control.

It is suggested that the internal control system should be designed according to the COSO report and the practice in Taiwan.

In this way, we can not only relate to the basic structure of the internal control, but also facilitate the auditors to test the internal control system of the audited units and improve the effectiveness of the system based audit.

(5) establish an internal control evaluation system.

In order to ensure that the internal control system can play an effective role and make it constantly improve, enterprises must regularly check and assess the implementation of the internal control system.

For the strict implementation of the internal control system, spiritual encouragement and material reward shall be given; for violation of regulations, administrative treatment and economic punishment shall be given and linked to the lifting of duties.

Only by combining pressure with motivation can we finally achieve the goal of internal control.

(two) promoting the reform of accounting firms, giving full play to the effectiveness of external supervision system and accelerating the implementation of partnership system in accounting firms. At present, most of accounting firms in China are limited liability system, which makes CPA face less professional risks, which is not commensurate with CPA's social responsibility constraints and society's credibility with CPA.

Therefore, partnership should be vigorously developed, including limited liability partnership.

The company recommends the proper development of individual proprietorship accounting firms. Although the scale of individual offices is small, the scope of business is easily restricted.