Fraudulent Financial Reporting

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 ACCT 3001 Individual Report
SID : 1155014517
Name : LI, Min

In 2013, China Metal Recycling Ltd. was accused by The Security and Future Commission in Hong Kong as it was involved in accounting fraud. It exaggerated accounts for loan, land and its warehouse receipts in its public offering financial statements for 2009. Also, its main subsidiary’s revenue was deliberately inflated according to powerful evidence. As a result, the CEO, Jacky Chun, was arrested because of irresponsibility of proper records on purpose, and some auditors related violated Professional Accounting Ordinance due to publicizing the annual reports with false information.

This ethical issue connects to fraudulent financial reporting by management personnel and accountants. Fraudulent financial reporting is defined to be misstatements of accounts and disclosure of a company’ financial statements publicized to investors. Most of such issue involves two kinds of misstatements which are intentional mistakes and serious omissions of accounts and disclosure in financial statements in order to deceive investors through misleading their estimation about the company.

Cap 32 s 121 of Hong Kong Ordinances rules that companies should keep proper records of various account. Meanwhile, Cap 32 s 123 of Hong Kong Ordinances requires that every account should give a true and fair view of the state of affairs of the company as at the end of its financial year. Moreover, if any person being a director of a company fails to take all reasonable steps to make sure company’s compliance with these requirements, or exerts pressure to cause deliberate misstatements by the company, he shall be liable to imprisonment and a fine. That’s why the CEO of CMR Ltd. was arrested.

Besides, HKAS 1 also requires that financial statements should present a true and fair view of the financial position and financial performance of a...
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