Financial Manipulation Signals In IPO Financial Statements

Accounts receivable increased significantly, and the growth rate was higher than that of the same period. The turnover rate of accounts receivable was lower than that of the same industry, or showed a downward trend.

The above information often indicates two kinds of manipulation possibility. First, the company may relax the credit policy temporarily, and promote the income increase in the short term; two, it is possible for the company to have an early recognition of income or fictitious income.

The growth of prepaid accounts, especially the unreasonable growth of prepaid projects or prepaid or non patented technology purchases, may lead to a false profit increase through outflow of funds in advance.

Inventory, especially quantity and value is not easy to determine the stock growth significantly, and the growth rate over the same period of cost growth, inventory turnover rate is lower than the same industry level, or showing a downward trend, often indicative of several manipulation possibilities. First, it may be through fictitious inventory purchase outflow of funds, and ultimately to increase profits; two, by reducing the unit cost of production, reducing the unit cost of products and inflating the number of products, and ultimately forming a fictitious profit; three is the backlog of inventory, but should not mention a large number of price depreciation preparations, and form a profit margin.

In construction projects, because they often have high total cost, difficult to determine the progress of the project, and the fact that the actual cost is difficult to measure, it is a common hidden subject of virtual profit.

The huge increase in construction projects, especially the continuous increase that is not suited to the scale of production and development and development plans, often indicates two possible manipulating possibilities. First, the funds are pferred out of the construction projects and eventually the fictitious profits are finally formed. Two, the expenditure that should be paid in the current period is packaged into the cost of the construction projects.

The purchase of intangible assets mainly refers to the procurement of outsourced patents or non patented technologies. It has the characteristics of no physical paction, unfairness in price fairness, and the difficulty in confirming the usage after purchase. It is a common hidden subject of virtual profit.

The huge increase in outsourcing technology, especially the continuous increase in outsourcing technology, which is not very relevant to the current production and operation, often indicates that the funds are pferred out of the intangible assets and eventually become fictitious profits.

According to accounting standards, goodwill is only acquired under the same control.

Since goodwill does not amortize, it only needs to carry out the impairment test. It is often difficult to determine whether it is necessary to calculate the impairment, so it is a common hidden subject of virtual profit calculation.

The amount of goodwill depends on the fair value of the purchase price and the identifiable net assets of the acquirer, and whether the intangible assets recorded by the acquirer are identifiable as identifiable assets, which has great influence on the fair value of identifiable net assets. The key to whether the intangible assets should be identified is whether it can be separated and measured separately.

The recognized intangible assets usually need to be amortized after the acquisition. Therefore, under the same conditions, the higher the fair value of the unrecorded intangible assets recognized, the less the goodwill value is confirmed. The intangible assets need to be amortized, which will have a huge impact on the profits after the acquisition.

The great increase in goodwill and even the purchase price mostly form goodwill, which often foreshadowed two possibilities. One is to collude with the selling party to raise the purchase price, and to pfer the excess funds to make profits. Two, the fair value of the identifiable net assets is recognized too low, especially if it does not confirm or depress the fair value of the intangible assets in the M & A assets.

The accounting standard stipulates that the confirmation of deferred income tax assets shall be limited to the amount of taxable income that is likely to be deducted for deductible temporary differences in the future period, and the taxable income in the future period involves more accounting estimates.

The virtual calculation of deferred income tax assets is often based on the estimation of future deductible losses. It is generally understood that the deferred income tax assets recognized as deductible losses are more radical in accounting methods and often belong to a performance whitewash.

It is a common way to regulate profits by coping with the advance of staff salaries, especially the year-end bonus, bonus and other non fixed wages.

The balance of payable employees' salaries fluctuates greatly at the end of each year, and the amount of discrepancy in each year is large. However, the difference in the actual amount of wages is not large, which often indicates that the performance is smoothed through the free prepayment of wages.

The abnormal earnings during the reporting period, and the abnormal income often used to raise the gross profit in a specific period of time, often indicate income manipulation.

The characteristics of abnormal income include: first, incidental, including occasional trading patterns, occasional products, casual customers, etc. Two, the paction object does not have physical form or does not have reasonable uses for counterparties, such as selling software products, providing technical services and so on; and three, paction prices deviate significantly from normal market prices.

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Depending on the sales structure of different products and the gross profit margin of different products, gross profit rate depends on unit price and unit cost. Unit cost includes material cost, labor cost and cost cost, among which material cost is often relatively large, and material cost is restricted by two factors: raw material consumption level and raw material unit cost.

The abnormal gross profit rate can be subdivided into abnormal sales structure, abnormal unit price, abnormal raw material unit cost and abnormal consumption of raw materials. Whether there is any anomaly is mainly judged by continuous comparison of relevant indicators in different periods, comparison of gross profit between industries, comparison of unit price or single purchase price and market price.

The unexplained gross margin is usually representative of possible financial manipulation.

Period

It mainly refers to the ratio between two periods of sales expenses and management expenses, which account for the main business income.

The cost rates of different industries are different, but there is usually a comparability between the same industries.

If the period fee rate is lower than the same industry level or the period cost continues to decline, it often indicates that there may be financial manipulation.

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There is a linear relationship with revenue, such as sales and pportation costs, sales revenue and sales commission, export revenue and customs fees.

If there is no relatively stable relationship between related expense items and income, it often indicates that there may be financial manipulation.

Operating net cash flow continues to be negative, or is seriously deviated from net profit, which often indicates possible performance manipulation. The sudden increase in operating cash flow in the last year may indicate that the cash flow will be whitewashed through accelerated collection and deferred payment in the last year, while operating cash flow is consistently better than that of the same industry level. At the same time, the investment cash flow continues to be a large negative number, which may be accompanied by income fraud. Cash is first packaged as an investment cash outflow and then packaged into a business cash flow inflow.