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Identifying fraudulent financial statements of construction companies listed on the Vietnamese stock market - 2

4.1.5 TATA- Total Accruals to Total Assets 45

4.1.6 DA- Discretionary Accruals 45

4.2 Correlation analysis 46

4.3 Regression analysis results 47

Chapter 5: CONCLUSION AND RECOMMENDATIONS 55

5.1 Recommendations from research model 55

5.1.1 Recommendations on applying the Beneish model to support the prediction of the possibility of financial reporting errors/fraud 55

5.1.2 Recommendations on solutions to limit errors/fraud in financial reporting .55 5.1.2.1 For companies 55

5.1.2.2 For auditors 55

5.1.2.3 For investors 56

5.1.2.4 For state management 56

5.1.2.5 For the company's board of directors 57

5.2 Conclusion 57

REFERENCES xii

APPENDIX… xiii

LIST OF TABLES

Table 2.1. Summary of factors that help detect financial reporting errors 21

Table 2.2: List of input variables considered 26

Table 2.3: Classification of type 1 errors and type 2 errors 30

Table 3.1: Sample selection results 41

Table 4.1 shows the descriptive statistical results, including the minimum, maximum, mean, and standard deviation values ​​of the 6 observed variables. 42

Table 4.2 Correlation coefficient matrix between variables in model 47

Table 4.3 Logistic regression model results (1) 49

Table 4.4 Logistic regression model results (2) 50

Table 4.5 Model validation (2) based on 2016 audit results 53

Table 4.6. Accuracy of M-score model (2) at 20% threshold with 2016 construction industry data. 54

LIST OF IMAGES

Figure 2.1 – Fraud Triangle 17

Figure 2.2: Research process 22

Figure 2.2: Research model diagram 1 31

Figure 4.1: Sample statistics by floor 42

Figure 4.2: GMI graph - Gross profit ratio 43

Figure 4.4: SGAI graph - Sales and administrative expense ratio 44

Figure 4.5: DSRI graph - Customer receivables to net revenue ratio 44

Figure 4.6: TATA graph - Ratio of accounting accruals to total assets 45

Figure 4.7: DA Graph - Adjustable Accrual Accounting Variable Ratio 46

LIST OF ABBREVIATIONS


ACFE

(The Association of Certified Fraud Examiners)

BTC

Ministry of Finance

Financial Statements

Financial report

DSRI

Days Sales in Receivables Index

SKIN

Discretionary Accruals

HOSE

HO CHI MINH CITY Stock Exchange

HNX

Hanoi Stock Exchange

GMI

Gross Margin Index

SGI

Sales Growth Index

SGAI

Sales, general and administrative expense Index

TATA

Total Accruals to Total Assets

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Identifying fraudulent financial statements of construction companies listed on the Vietnamese stock market - 2


Chapter 1: OVERVIEW OF THE TOPIC

1.1 Necessity of the topic.

In a market economy, the need to give and receive information, especially financial information, always plays an important role in making key business decisions. The transparency and honesty of financial information play a major role in stabilizing the stock market and social stability. Not only that, the current economy is growing stronger, the business scale of companies and the globalization of commercial activities are increasingly expanding, leading to the complexity of accounting and auditing work also increasing accordingly.

Fraud in financial statements is one of the current issues. This issue has received more attention after the bankruptcy of large companies in the US, the main reason being the manipulation of data in financial statements created by the management of those companies. A typical example is the collapse of Word Com - one of the largest telecommunications corporations in the US related to fraud and providing inaccurate data in financial statements. Obviously, detecting errors in financial statements to ensure their honesty has become a big challenge for business managers as well as related parties. Therefore, fraud in financial statements has always been a topic of interest to many researchers. For example, Beasley (1996) conducted an empirical analysis of the relationship between the composition of the board of directors and financial statement fraud of companies listed on the US stock market. Research results show that the more independent members from outside the company in the board of directors, the less fraudulent financial reporting acts. Rezaee's (2002) study focused on identifying the causes, consequences and methods to prevent fraudulent financial reporting acts of listed companies in the US. The study presented solutions to detect and prevent fraudulent financial reporting acts, including solutions to analyze the functions and roles of parties involved in the process of preparing and publishing financial statements of the company such as the board of directors, the board of supervisors, internal control, senior management team, independent auditors, and state management agencies. Obviously, identifying fraudulent financial reporting has been studied in many countries around the world.

In Vietnam, in recent years, there have been many cases of fraud in financial statements. The occurrence of fraud in financial statements in large companies has raised increasing concerns about the honesty and reasonableness of financial statements. It is also a big challenge for company managers as well.


as for auditors in detecting fraud in financial statements. Therefore, fraud is always a topic of interest to many researchers.

The following study deals with “ Identifying financial reporting fraud in construction companies listed on the Vietnamese stock market . ” At the same time, it provides some recommendations to increase the transparency of financial accounting information, as well as notes for investors.

1.2 Research objectives.

1.2.1 General objectives:

Research on fraud in financial statements of construction companies listed on the Vietnamese stock market.

1.2.2 Specific objectives:

- Synthesize the current situation of errors and fraud in financial statements of construction companies listed on the Vietnamese stock market in the three years 2013-2015.

- Building a research model on detecting financial reporting fraud to predict the possibility of errors and fraud of construction companies listed on the Vietnamese stock market in 2016.

- Provide recommendations to limit and prevent fraud risks in financial statements, improve the usefulness of financial statement information.

1.3 .Research method.

1.3.1 Data collection method.

Data collection and processing are pre- and post-audit financial reports of 40 construction companies listed on the stock market in the three years 2013-2015.

Data is collected from websites specializing in stock investment such as vietstock.vn,cafef.vn,....

1.3.2 Data processing method. (will be discussed in detail in chapter 2)

- Use statistical methods to describe independent variables in the model.

- Correlation analysis early identifies variables that are related to each other.

- Using the Beneish model to identify financial reporting fraud. (Analysis


Logistic regression uses a binary dependent variable.

1.4 Research scope.

1.4.1 Objects.

Thesis research on fraud in financial statements of construction companies listed on the Vietnamese stock market.

1.4.2 Scope of research.

Spatial scope: The research sample was selected from construction companies listed on the Vietnamese stock market.

Time scope: The research data in the thesis on fraud in financial statements of listed companies on the Vietnamese stock market is data from 2012-2015 and pre- and post-audit reports of these 40 companies in 2016 to verify the accuracy of the model.

1.5 Structure of the thesis.

The thesis consists of 5 chapters:

o Chapter 1: Overview of the topic "Identifying fraudulent financial statements of construction companies listed on the Vietnamese stock market"

o Chapter 2: Theoretical basis and research methods.

o Chapter 3: The reality of fraud in financial statements of construction companies listed on the Vietnamese stock market.

o Chapter 4: Research results on fraud identification in financial statements of construction companies listed on the Vietnamese stock market.

o Chapter 5: Conclusion and some recommendations for users of financial statements.


Chapter 2: THEORETICAL BASIS AND RESEARCH METHODOLOGY

2.1 Theoretical basis for errors in financial statements

Definition of financial statements and errors and fraud in financial statements

Financial statements of an accounting unit are a systematic presentation of past financial information, including relevant explanations, in accordance with the framework for preparing and presenting financial statements. Financial statements of an accounting unit include: financial situation report; performance report; cash flow report; financial statement explanation; other reports as prescribed by law ( Article 29, Accounting Law No. 88/2015/QH13 ).

According to Vietnamese dictionary: fraud is dishonest, deceitful, and deceptive behavior aimed at deceiving others.

In a broad sense: fraud is the distortion of the truth, performing illegal acts to deceive, lie to gain a certain benefit. Three common manifestations of fraud are: appropriation, fraud and theft.

Misstatements in financial statements can arise from fraud or error. To distinguish between fraud and error, it is necessary to consider whether the behavior leading to errors in financial statements is intentional or unintentional. The thesis mainly focuses on studying intentional errors in financial statements or in other words, studying fraud in financial statements of enterprises.

According to Auditing Theory (Prof. Dr. Nguyen Quang Quynh, Dr. Nguyen Thi Phuong Hoa - Finance Publishing House) , errors are a key factor in verifying the truthfulness of accounting information and financial activities. Errors include fraud and errors. "Fraud is an act of intentionally deceiving, concealing, and distorting the truth for the purpose of personal gain". "Errors are unintentional errors, often understood as mistakes, omissions, or weaknesses in capacity that cause errors".

According to Vietnamese Auditing Standard No. 240 ( BTC, 2012, Section I: General Provisions) , “Errors in financial statements may arise from fraud or error. To distinguish between fraud and errors, it is necessary to consider whether the behavior leading to errors in financial statements is intentional or unintentional”. Vietnamese Auditing Standard No. 240 also defines: “Fraud is an intentional act by one or more people in the Board of Directors, Management Board, employees or third parties through fraudulent acts to gain illegal or unjust profits”.

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