Tag: Failure

A case study of CPA audit failures in listed companies

Review of the financial fraud case of Wanfu Biotechnology: A case study of CPA audit failures in listed companies – The main business of Wanfu Shengke (Hunan) Agricultural Development Co., Ltd. is the research and development, production, and sales of rice intensive processing products. Discussion on Impact of Big Data Analysis on CPA Audit.

Here are the articles to explain, Discussion on A case study of CPA audit failures in listed companies!

The company stood successfully listed on the Growth Enterprise Market in 2011. But it stood exposed to a financial fraud scandal in just one year. In 2012, when the CSRC inspected the company. It found that the prepaid account balance in the company’s financial statement data was very high. Which stood suspected financial fraud. Therefore, the CSRC decided to file a case for inspection in September, and the exchange suspends trading of the company’s stock for one month. Later, Wanfu Shengke admitted to financial fraud and temporarily suspended trading for the second time on May 16, 2013.

Analysis of the fraudulent methods of Wanfu Biotechnology

“One-stop” fraud mode, strong systematic

Wanfu Shengke made virtual purchases, production, and sales, and forged corresponding credentials. The non-real-money fraud mode adopts by the post-listing financial fraud. A huge amount of prepaid accounts existed fabricated. The “one-stop” fraud process is to first transfer the funds in one’s account to scattered personal accounts using prepayment, which is ostensibly the prepayment for the purchase of grain, and then the fictitious income, and pass the money in these personal accounts through the company. The sales revenue stands transferred back to the company’s account. And the free funds complete the extracorporeal circulation to achieve the purpose of inflating sales revenue and increasing profits. A series of pipelined frauds are enough to reflect its systematic fraud.

Fictitious cash flow, strong concealment

Its free funds change ways in cardiopulmonary bypass. It stands shown as a prepayment of a large amount of money. Which stands divided into several pieces of funds when the payment stands returned to avoid the attention of the auditors. At the same time, to avoid inconsistency between personal and corporate accounts, Wanfu Biotechnology also took the risk of smuggling the business seals of several banks and forging bank receipts. Investigators also spent a lot of time checking bank receipts and found fake bank receipts. This shows that the fraud exists hidden and realistic, and it is relatively difficult to find the problem directly.

Adopting the cost backward calculation system, the overall balance of the financial statements

According to the principle of income and cost ratio, Wanfu Biotechnology adopts the cost-back calculation system. The financial staff reversely calculates the company’s cost according to the fictitious income to achieve a balance between production and sales. Not only that, many of Wanfu Biotechnology’s businesses are true and false. True numbers also have false numbers. And based solely on the financial statements calculated backward. It is impossible to see the tricks and find out the problem of fraud.

Reasons and faults in the case study of CPA audit failures

In addition to Wanfu Shengke’s fraudulent methods, certified public accountants also have many mistakes in the audit business. Such as the following:

The analysis program is not in place

First of all, as a rice processing enterprise. Wanfu Biotechnology has an abnormally high gross profit margin and low inventory turnover rate. In the analysis of the upstream and downstream industry chains. It can be found that the upstream purchase price increases. While the downstream product sales price decreases. , the gross profit margin is very stable strangely.

Sponsors and accountants may fail to find abnormal gross profit margins. And can easily conclude that the company’s business is normal and gross profit margins are no problem; not only that. Auditors also did not maintain proper professional prudence for the abnormally high prepaid accounts and gave due consideration. Some are concerned, see through the lies of their raw material supply, and conduct further audits on the above anomalies. Thereby identifying and assessing the risk of material misstatement.

Lack of confirmation and supervision procedures

Auditors must implement corresponding procedures based on the principle of relevance, clarify work requirements, and ensure the quality of practice. However, later investigations found that Zhonglei and its certified public accountants did not make any judgments about the bank deposits and account receivable of Wanfu Biotechnology at the end of 2008 and 2009.

Correspondence to the balance of the payment was carried out, and the corresponding alternative audit procedures were not implemented. Due to the lack of bank deposit confirmation and accounts receivable confirmation procedures, the certified public accountants contacted by Zhonglei failed to detect Wanfu Shengke’s fraud and completed the fact of fictitious income through the extracorporeal circulation of its funds.

Even in the implementation of the confirmation procedure. The firm did not perform well and did not control the implementation process of the confirmation. Some of the replies even had the signature and seal of the person who was not asked to inquire about the letter. The above-mentioned procedural defects and carelessness were the important reasons for the failure of the audit.

There is no “ground gas”, and the verification of the bank’s running water is ignored

The certified public accountant failed to start with the details, especially the original documents. Such as bank receipts and other original documents to find the issuer’s financial abnormality. Many companies’ fraudulent methods are not flawless. It was the auditors who were careless, ignored some details, and passed over the subtleties. The bank balance deposits and bank receipts with high authenticity were passed over, allowing them to forge.

Thoughts and Suggestions for the case study of CPA audit failures

Design, implement, and maintain necessary internal controls

The realization of the “one-stop” fraud reflects the excessive concentration of power in Chinese enterprises. Gong Yongfu and his wife Yang Ronghua hold 80.38% of Wanfu Biotechnology, and the equity is highly concentrated. It is like a mom-and-pop shop and lacks perfect internal control. Defects in the company’s governance structure are a major driving force behind the realization of Wanfu Shengke’s financial fraud. Therefore, enterprises should design and implement necessary internal control, strengthen corporate governance, and change the situation of excessive concentration of power.

Certified public accountants should abide by and strengthen professional ethics

As far as auditing business is concerned, a certified public accountant must be independent of the audited entity and be in the public interest. A certified public accountant with good professional ethics can abide by professional ethics requirements, maintain corresponding professional doubts, and reasonably use professional judgments.

In Wanfu Shengke’s audit, the firm’s upstream and downstream verification found signs of false transactions, but did not conduct further audits, but issued an unqualified opinion, which is obviously against professional ethics. Secondly, auditors should not blindly listen to the information provided by the audited enterprises but should conduct audits in strict accordance with the procedures and collect evidence from different information channels, to effectively prevent and reduce the risks brought by the audit.

Strengthen supervision and management of intermediary agencies and local governments

Because intermediaries are subject to the business entrusting party, to continue to receive high remuneration from the entrusting party, many intermediary agencies have lost their independence, and illegal operations have contributed to financial fraud and harmed the interests of investors and the public. Therefore, the China Securities Regulatory Commission should improve relevant laws and regulations, introduce and improve the corresponding civil compensation system, clarify rights and responsibilities, and increase the cost of violations.

All sectors of society should also work with relevant government departments to build a reputation mechanism for intermediaries. At the same time, overcome the local government’s use of the number and “performance” of locally listed companies as its “performance”, and increase the punishment of government officials for illegal “green light” behaviors of listed companies.

A case study of CPA audit failures in listed companies; Photo by Chris Ensminger on Unsplash.

July 21, 2022
Why Some Succeed While Others Fail

Why Some Succeed While Others Fail

Short Story by Benjamin Franklin

Possibly there never has lived a man who has excited more comment than has the subject of this narrative, who was born in Boston, January 17th, 1706. His father was a soap boiler and tallow chandler, and he was the fifteenth in a family of seventeen children.

Young Benjamin was expected by his parents to become a minister of the Gospel, and for this purpose was placed in school at the age of eight, but the reduced circumstances of his father compelled his return home two years later, and he began the work of cutting wicks in his father’s establishment. Afterward, he was bound to his brother James, who was a printer, where he worked hard all day and often spent half the night in reading.

This biography of Benjamin Franklin was written by H.A. Lewis in his book, Hidden Treasures: Why Some Succeed While Others Fail (1887). Interesting fact: “In 1776 Congress sent him to France, where he became one of the greatest diplomats this country has ever known. During his voyage over he made observations relative to the Gulf Stream, and the chart he drew of it nearly one hundred (over 230) years ago, still forms the basis of maps on the subject.”

The secret of his great success can be readily perceived, when we know that his favorite books were Mather’s “Essays to Do Good,” and DeFoe’s “Essays of Projects,” and many others of a like nature: instead of the modern “Three Fingered Jack,” “Calamity Jane,” “The Queen of the Plains,” or the more ‘refined’ of to-day’s juvenile reading.

When he was about sixteen he wrote, in a disguised hand, an article for his brother’s paper. This article was published anonymously and excited great curiosity. Other articles followed, at length, the identity of the author was discovered, and for some unknown reason, the elder brother was offended. From that hour Benjamin resolved to leave Boston, as his brother’s influence was used to his disadvantage in that city.

Embarking, he worked his passage to New York, where he arrived at the age of seventeen, almost penniless, and without recommendations. Failing to obtain work here he continued on to Philadelphia, where he arrived, disappointed but not discouraged. He now had but one dollar, and a few copper coins, in the world. Being hungry, he bought some bread, and with one roll under either arm, and eating the third, he passed up the street on which his destined wife lived, and she beheld him as he presented this ridiculous appearance. Obtaining employment, he secured board and lodging with Mr. Reed, afterward his father-in-law.

Being induced to think of going into business for himself, through promises of financial help from influential parties, he sailed to London for the purpose of buying the necessary requisites for a printing office. Not until his arrival in that great city, London, did he learn of the groundlessness of his hope for aid from the expected quarter. In a strange land, friendless and alone, without money to pay his return passage, such was his predicament; yet he lost not his courage, but obtained employment as a printer, writing his betrothed that he should likely never return to America. His stay in London lasted, however, but about eighteen months, during which time he succeeded in reforming some of his beer-drinking companions.

In 1826 he returned to America as a dry-goods clerk, but the death of his employer, fortunately, turned his attention once more to his especial calling, and he soon after formed a partnership with a Mr. Meredith. This was in 1728. Miss Reed, during his stay abroad, had been induced to marry another man who proved to be a scoundrel; leaving her to escape punishment for debt, and, it is alleged, with an indictment for bigamy hanging over his head. Franklin attributed much of this misfortune to himself and resolved to repair the injury so far as lay within his power. Accordingly, he married her in 1830. This proved a most happy union. His business connection with Mr. Meridith being dissolved, he purchased the miserably conducted sheet of Mr. Keimer, his former employer, and under Franklin’s management, it became a somewhat influential journal of opinion.

It was through this channel that those homely sayings, with such rich meanings, first appeared in print. His great intelligence, industry, and ingenuity in devising reforms, and the establishment of the first circulating library, soon won for him the esteem of the entire country. 1732 is memorable as the year in which appeared his almanac in which was published the sayings of the world-famous ‘Poor Richard.’ This almanac abounded with aphorisms and quaint sayings, the influence of which tended mightily to economy, and it was translated into foreign languages, in fact was the most popular almanac ever printed.

After ten years’ absence he returned to his native city, Boston, and his noble instincts were shown, as he consolingly promised his dying brother that he would care for his nephew, his brother’s son. Returning to Philadelphia he became postmaster of that city, established a fire department, becomes a member of the Assembly, to which office he is elected ten consecutive years.

Although he was not an orator, no man wielded more influence over the legislative department than did Franklin. As is well-known, he invented the celebrated Franklin Stove, which proved so economical, and for which he refused a patent. For years he entertained the theory that galvanic electricity, and that which produced lightning and thunder were identical; but it was not until 1752 that he demonstrated the truth by an original but ingenious contrivance attached to a kite, and to Franklin we owe the honor of inventing the lightning rod, but not its abuse which has caused such widespread animosity to that valuable instrument of self-preservation.

These discoveries made the name of Franklin respected throughout the scientific world. Forever after this period, during his life, he was connected with national affairs. At one time he was offered a commission as General in the Provincial Army, but distrusting his military qualifications he unequivocally declined. Sir Humphrey Davy said: “Franklin seeks rather to make philosophy a useful inmate and servant in the common habitations of man, than to preserve her merely as an object for admiration in temples and palaces.” While it is said of him by some that he always had a keen eye to his own interests all are forced to add he ever had a benevolent concern for the public welfare.

The burdens bearing so heavily upon the colonies: Pennsylvania, Maryland, Georgia, and Massachusetts, appointed Franklin as their agent to the mother-country. Arriving in London in 1757, despite his mission, honors awaited him at every turn. There he associated with the greatest men of his time, and the universities of Edinburgh and Oxford honored him with the title of L.L.D. and the poor journeyman printer of a few years before, associated with princes and kings. At the end of five years he returned to America, and in 1762 received the official thanks of the Assembly. Two years later he was again sent to England, and he opposed the obnoxious stamp act, and where he carried himself with decorum and great ability before the entire nobility. Upon his return to America he was made a member of the Assembly the day he landed, where he exerted his whole influence for a Declaration of Independence, and soon after had the pleasure of signing such a document.

In 1776 Congress sent him to France, where he became one of the greatest diplomats this country has ever known. During his voyage over he made observations relative to the Gulf Stream, and the chart he drew of it nearly one hundred years ago, still forms the basis of maps on the subject. As is well known, to Franklin more than all others, are we indebted for the kindly interference by France in our behalf, whose efforts, though ineffective in the field, helped the revolutionary cause wonderfully in gaining prestige. At the close of the war Franklin was one of the commissioners in framing that treaty which recognized American independence. His simple winning ways won for him admiration in any court of embroidery and lace, while his world-wide reputation as a philosopher and statesman won for him a circle of acquaintances of the most varied character. On the 17th of April, 1790, this great statesman died, and fully 20,000 people followed him to the tomb. The inscription he had designed read:

“The body of Benjamin Franklin, printer; Like the cover of an old book— Its contents torn out, and script of its lettering and gilding: Lies here food for worms.”

Yet the work itself shall not be lost. For it will, as he believed, appear once more, in a new and more beautiful edition, corrected and amended by the Author. Truly, America has been rich in great men, of which Franklin was not the least. Dr. Franklin, in his will, left his native town of Boston, the sum of one thousand pounds, to be lent to the young married artificers upon good security and under odd conditions. If the plan should be carried out as successfully as he expected, he reckoned that this sum would amount in one hundred years to one hundred and thirty-one thousand pounds. It was his wish, and so expressed in his will that one hundred thousand pounds should be spent upon public works, “which may then be judged of most general utility to the inhabitants; such as fortifications, bridges, aqueducts, public buildings, baths, pavements, or whatever makes living in the town more convenient to its people, and renders it more agreeable to strangers resorting thither for health or temporary residence.” It was also his wish that the remaining thirty-one thousand pounds should again be put upon interest for another hundred years, at the end of which time the whole amount was to be divided between the city and the State. The bequest at the end of the first one hundred years may not attain the exact figure he calculated, but it is sure to be a large sum. At the present time it is more than one hundred and seventy-five thousand dollars, and it has many years yet to run.

June 30, 2017
Fear is Killing You!

Fear Is Killing You! Inspirational Short Story

Remember the person you use to be? Fear is Killing You! This is a story about How to Fear is Kill You! You were SUCH a dreamer. You were so passionate about that career or field of choice, and then something happened. Yes, something happened. A few roadblocks, a few detours, a few pit stops, and then you… DIED. You stopped being the inspiration that you once were. That child-like look that was once in your eyes every time you spoke of the future was gone.

Where did YOU, go? and did that dreamer go? There was once this passion that burned for each and everything you got your hands on. No one could stop you. Not your mother, not your teachers, not your friends; you use to so determine. But I guess the key phrase is “Use to be!”

You got so caught up and so focused on all the negativity that you let it eat you up inside. You had so many dreams and then you faile a few exams and said, “You know what? Maybe this isn’t for me.” Even though your experience was lacking and it had nothing to do with you as a person. You just needed a little more effort and time with everything!

But you are not alone. There is another group of fearful individuals with great jobs, but they aren’t living inside either. They are fear. Scared to leap. Fear to fall flat on their face. Scaring to lose that security that they have. They have other passions and other desires, but they stopped reaching for them. Now they are stuck in their own mental slavery. Stuck in the 9 to 5 lifestyle of waking up, driving to work, sitting down, turning on their computers, and then zoning out for the next 8 hours.

At work, they dream all day, and quote “what if’s” or they complain about how much they hate where they are. It is interesting to see people who hate something but continue to deal with it each and every day. Sometimes you have to do things that you don’t want to do. I totally understand. But when it starts eating at your soul, and it starts to bring you down mentally and physically, something is wrong.

It makes me think of that chant we would do as kids, “SCAREDY CAT, SCAREDY CAT, NANA BOO BOO.” Well, maybe not me, but in all of the white sitcoms I watched growing up, that was the popular phrase. And then what would happen? That kid would then challenge the world and make sure he or she would never be dubbing as a “scaredy cat” again. But I guess that was the difference between us as kids and us as adults.

When we were kids the world was so big and we want to conquer it all. If we wanted to fly we jumped off of our bunk beds or couches. If we want to be explorers or captains of ships, we would put on the first hat we could find and pretend to steer our battleship. We fought crime, and we had some of the coolest noises to go along with our fighting skills. But then that kid died too. You let society put you in a box and nail it shut! They told you what you had to do in order to make it. They told you what they thought was “best for you!” And of course, some things made sense. But other things stop you from being who you were destined to be.

After reading ‘Linchpin’ by Seth Godin, my eyes were open. I learned about what it truly means to be of value to this great planet. I saw some of my deepest fears dissolving. Trust, I can be just as scared as everyone else. But, I refuse to let “FEAR” keep me in a box any longer. We all quote that epic Philippians quote. You know the one!

‘I can do all things through Christ who strengthens me.’ Yeah, you quote it and you may even have it tattoo on your back, collarbone, or somewhere else on your body, but there is no way you could quote that and then think about the things you want to do in life and then say “I can’t do it,” “I am scared,” “I’m so nervous no one will give me a chance.” And while I understand that being nervous is normal, when it starts to stop you in your path then things change.

You have basically stated, ‘Yeah, I know I can do all things through He that strengthens me, but that one thing, I just can’t do!’ – that one thing that stands in your path of greatness – ‘I just can’t do’. Sorry! I guess that is what happens when you are living for yourself.

You ever thought about what you would do for your close friend, or family if anyone ever tries to hurt them or if you saw them going through something and they are scared? You lose all of the fear that you have in order to protect and provide for them, become their comfort and their beacon of light. All of the nervous settles and then you are able to push them into being great individuals. When you are doing things because of a bigger picture, life changes. When you stop thinking about how scared you are and think about how many more people will help or heal because of what you do, then it all changes.

But you know what? I will stop here. Because at this point I am either only preaching to the choir or I am preaching to the fearful. I don’t want to run you away and make you think of yourself as nothing. I want this to a lesson in empowerment. Fear is a dangerous thing when used incorrectly. Let that fear be that motivation to fly! Let that fear be the motivation to keep pushing! Channel it into something else and then keep pushing forward. A lot of people are rooting for you. A lot of people are in your corner. The more they see you come alive the more they are able to develop who they should be or what dreams they should be going after. Failure is Not an Option!

If you have been letting fear kill you and tear you up on the inside it’s okay. You are not alone, and now that you know you are not alone, you shouldn’t let it bring you down any longer. I do hope that this reaches your heart because it came from the bottom of mine. Don’t let fear kill the greatness that you have inside of you.

May 25, 2017
Failure is Not an Option!

Failure Is Not an Option!

They say that ‘impossible’ is a word that the human mind creates. Certain things such as fear, or just the lack of resources, can hold many men and women back from reaching their true potential. Others have it all, and yet, they still cannot get it together. So how do we curb this common problem of failure? Endurance! We must endure this thing called failure and keep pushing through it for as long as we can. Sometimes we will meet our match and learn that something isn’t for us, and in other occasions we will reach success if we just don’t stop plowing through the field. The funny thing about success is that it doesn’t come when you would always like it to come.

Successful people are usually visionaries. They can see the forest through the trees, and they can see the end goal before any of it happens. I remember when I heard Talib Kweli talk about Kanye and how he got started in the rap game. He talked about how he thought Kanye was crazy because he was talking about his second album before he even put out the first one. He found it so interesting that Kanye could just see something that no one else could see at the time. The mind is an interesting thing. How we use it can truly make or break us as we tackle our careers, whether it is for school or the work force.

“I have not failed. I’ve just found 10,000 ways that won’t work.” ― Thomas A. Edison.

“Success is not final, failure is not fatal: it is the courage to continue that counts.” ― Winston S. Churchill.

“I can’t give you a sure-fire formula for success, but I can give you a formula for failure: try to please everybody all the time.” ― Herbert Bayard Swope.

But as I continue reading the ‘Uncommon Life’ by Tony Dungy, it makes a valuable point in regards to the concept of failure. We rarely embrace failure, nor do we teach kids how to deal with failure. We assume that we are supposed to be perfect. We think that we have to get the best grade on everything that we do. The moments that we don’t, then we try to execute ourselves verbally and physically. Failure comes. That is life. But, what are you going to do when failure throws a dagger through your shoulder and pins you to the wall? Give up? Because that is what you spent 4 to 12 years in school to do, QUIT!?

Just because life is tough and often filled with roadblocks doesn’t mean those roadblocks have to stop you. Think about when you are driving and you see a roadblock sign. It is usually met with a detour sign showing you another way to go, or you turn around, and you go back to where you began. That is life. If you are not going to make a detour, then you need to go back to the beginning. Learn from those mistakes. Then, improve yourself for the next time.

Also, how much time have you put into this craft before quitting? How many hours did you really put in before you said you were finished? A couple hours? A few days? A few years? And how was your attitude while doing it all? Did you already predict failure before it could happen? Did you go into thinking whatever happens, happens? Instead of claiming your victory? Your words are powerful. We have discussed this before, and I can’t begin to tell you how truthful it is.

But, once again, what do I know? As I write this book, I will tell you honestly that I am not that good of a writer. And some days I trash things grammatically. I have grammar editing applications, and I have friends proofread my writing each and every time (and even with all of that, I will still end up sending out an email blast spelling things wrongly). But does that stop me? NO! There was always a bigger picture to keep my eyes on and I knew people were still being impacted either way. If I don’t write what I am writing, one soul will be lost. One person will quit. One person will lose it all. And yeah, maybe I shouldn’t put that all on me but I do it anyways. So it keeps me motivated to keep writing regardless of how many errors and typos I put out. Eventually, I will get it right. If I don’t, then I will keep trying! But I won’t let the trees shadow the forest. There is an end goal in mind and I won’t be defeated.

So I say this… Failure is not an option you want, but it can definitely happen! Create a new path, take a detour, start over, and get on it again! Take a break. For a day, month, or maybe even a few years. But if it is still on your heart then I suggest you try again. After you do that then you can bow out gracefully. But you didn’t fail. You accepted the challenge, and the outcome wasn’t the most favorable. But you probably did something that many were afraid to do. So tell your story. Teach others where you went wrong. Help others get through the forest with the map of failures that you have created to light your path.

May 20, 2017