To analyze the impact of these reasons for frauds in the financial statements company listed on Vietnam Stock Market based on actual survey results. To give recommendations for the government, auditors to control, detect and forecast fraudulent financial statements of listed companies on Vietnam stock market.
1 CHAPTER THE INTRODUCTION ABOUT RESEARCH 1.1 The need of research Recently, fraudulent financial statements have been increasingly becoming a serious problem for the government, listed companies and investors, which threaten the fairness of financial market and enterprises The impact of the economic crisis in the world led to the financial exhaustion of enterprises and rise in bankrupt and motivations for fraud behaviors towards financial statements That has resulted in an urgent need to handle with fraud financial statements of companies listed on Vietnam's stock market Many researchers believe that statistics just pointed out economic damages caused by fraudulent behaviors towards financial statements but not measure intangible losses such as belief and negative impacts on the stock market when not all of the financial statement frauds were detected According to ACFE (2014), only about 3% of the fraud financial behaviors were detected in 2014 over the world Besides, the audit reports point out only whether there is any fraud but fail to give reasons of fraud behaviors towards financial statements Therefore, the study of key factors resulting in fraud financial statements give contributions in improving the efficiency of corporate governance and enacting feasible policies to control frauds financial statements of companies listed in the stock market of Vietnam effectively There have been many studies on fraudulent financial statements in countries with developed economy as the US, UK, Australia where the subjects using financial statements are well aware of the role of honesty and accuracy of information provided in the financial statements However, according to in the author’s understanding, such studies are limited while the topic is receiving a lot of attention from business managers, users of financial statements, investors and management agencies Furthermore, the limitations of the accounting system itself in Vietnam and the specific characteristics of financial statements, the activities of listed companies also are the sources of fraud behaviors of financial statements Thus, the thesis chooses the specific context of the stock market in Vietnam to study the key factors affecting the fraud behaviors of financial statement are necessary 1.2 Overview of relating studies Research on factors resulting in frauds financial statements mainly done by foreign researchers in many different stages of various the system international auditing standards SAS (No 16, No 53, No 82, No 99) and ISA No 240 One noticeable difference is that there are studies being conducted with a combination of influent factors while some other studies just delve into a specific factor Such studies based mainly on theoretical fraud weight table with the warning signs of red (Red flags) initiated by Romney et al (1980) and fraud triangle theory (fraud triangle) by Cressey (1953) In Vietnam, researches related to this topic has also been discussed but mainly in terms of auditing statements and behaviors of adjusting profit while factors affecting fraud behaviors of financial statements are ignored or not the mail goals of research Thus, studies of factors affecting frauds financial statements have not yet systematized fully and not examined the impact of these factors to fraud financial reports (Ngo Thi Thu Ha, 2007; Ha Hong Hanh, 2012; Nguyen Thi Phuong, 2012) Regarding model research, to detect fraud behaviors financial statements, studies of DeAngelo (1986), Friedlan (1994), Healy (1985) and Jones (1991) used the model accrual adjustments (Discretionary accruals models) Another model also mentioned is the F-score model of Dechow et al (2011) This model was also developed based on the M-score of Beneish, which supplement non-financial variables and market data to external variables of financial statements In Vietnam, there are some studies using accrual models such as Nguyen Thi Uyen Phuong (2014), Phan Thi Thuy Duong (2015) The studies using typically statistical techniques include the research by Pham Thi Bich Van (2013) and the study of Nguyen Tran Nguyen Tran, 2014 and Hoang Khanh & Tran Thi Thu Hien, 2015 applying the model Beneish anticipated misstatement of the financial statements (Appendix 2.2) The limitation of these studies is the application of available models without any modification to be match with Vietnam's stock market 3 1.2.2 The flaws of such researches The limitation of relating researches as mentioned above prove the necessity of this thesis which focus studying the topic in the context of stock market of Vietnam with characteristics of an emerging stock market and in the context that studies of frauds financial statements much less The thesis is expected to overcome the limitations of the theoretical basis, the choice of variable sizes and methods of previous studies, especially previous studies on this topic in Vietnam 1.4 Subject and scope of the thesis 1.4.1 Subject of the thesis Research object of the thesis is that the factors affecting fraudulent financial statements at listed companies on the stock market Vietnam from the perspective of independent audit companies legally approved 1.3 Objectives and research questions 1.3.1 Research objectives (1) To determine the content of appropriate theoretical foundation applied in research, content, manner of fraudulent financial statements (2) To identify the reasons for fraudulent financial statements of the listed companies matching context of the reality of Vietnam Stock Market (3) To analyze the impact of these reasons for frauds in the financial statements company listed on Vietnam Stock Market based on actual survey results (4) To give recommendations for the government, auditors to control, detect and forecast fraudulent financial statements of listed companies on Vietnam stock market 1.3.2 Research questions Question 1: What is the theoretical basis used as a foundation to study reasons for fraudulent financial statements? Question 2: What are kinds of reason for/ factors of fraudulent behavior towards financial statements of the listed companies on the stock market in Vietnam? Question 3: How these factors affect the motivation, pressure, opportunities and attitudes to fraudulent financial statements at listed companies on stock market in Vietnam nowadays? Question 4: What are recommendations to maximally control fraudulent financial statements of listed companies on Vietnam stock market? 1.4.2 Scope of research The thesis focuses on studying factors affecting fraudulent financial statements, which are based on the triangle of frauds in accordance with the audit standards Vietnam No 240 (VSA 240) and red signs red in the model scales cheating on practical aspects of management This study focus on nonfinancial corporations in Vietnam stock market 1.5 New contributions of the thesis Determine the study theoretical basis on the factors affecting fraudulent financial statements of listed companies consistent with the context of Vietnam's stock market Through interviews with experts in stock market, finance and audit, the author has developed new 10 measurement criteria of group independent variables include legal environment, macroeconomic environment and the control of the State for fraud financial statements, which fit the actual situation in Vietnam Develop and test a model study of factors affecting fraudulent financial statements of the listed companies on the stock market of Vietnam The results of surveying 485 auditor show that, in 12 independent variables of explaining significant causes of fraudulent financial statements of the listed companies, there are eight variables with positive signs which suggests a positive relationship between these variables and the dependent variables mean fraudulent financial statements remaining variables include the characters of Board of Directors, control of the State, Independent Auditors and the qualifications of managers have a negative correlation to the fraudulent financial statements, which demonstrate that the greater impacts these factors have, the less likelihood fraudulent financial statements happen in listed company in the securities market of Vietnam 1.6 Research process Based on research objectives and research questions, process of thesis research is reflected in the following diagram: Research objectives To build research models To identify the reasons for fraudulent financial statements of the listed companies To analyze the impact of these reasons for frauds in the financial statements company listed on Vietnam Stock Market Research Methodology - Overview of relating studies - Qualitative methods Fin dings Quantitative methods Recommendations Figure 1.1: process of thesis research 1.7 Structure of the thesis The thesis includes chapters as follows: Chapter 1: Introduction about research topics Chapter 2: Rationale for fraudulent behaviors towards financial statements of listed companies and the influencing factors Chapter 3: Research Methodology Chapter 4: Findings Chapter 5: Discussion of findings and recommendations CHAPTER 2: THE LITERATURE REVIEW OF FRAUDULENT BEHAVIOR OF FINANCIAL STATEMENTS OF LISTED COMPANIES AND OTHER INFLUENTIAL FACTORS 2.1 Overview of fraudulent financial statements 2.1.1 The concept of frauds and fraudulent financial statements 2.1.1.1 The concept of fraud Around the world, Edwin H Sutherland, the researcher on American crimes who gave birth to the term "white - collar crime", refers this concept to fraudulent behavior by the senior executives of the company cheating the public The later studies have used this term to replace other common terms of frauds In the scope of research, the thesis focus on fraudulent behaviors in accordance with the Vietnam Auditing Standards No 240 (VSA 240) Accordingly, "Fraud is an intentional act by one or more persons in the Board of Management, Board of Directors, employees or third party done by the fraudulent acts to gain illicit or illegal interests" 2.1.1.2 The concept of fraudulent financial statements Based on the term "white - collar crime" by Edwin H Sutherland, fraudulent behaviors towards financial statements often refer to fraudulent behaviors by managers of listed companies The concept of fraudulent financial statements fraud are mentioned by many researchers Within the scope of research, the thesis focuses on fraudulent behaviors in accordance with the Vietnam Auditing Standards No 240 (VSA 240) According to VSA 240 and ISA 240, "Frauds in financial statements are behaviors of changing and tampering with accounting documents; behaviors of falsifying or intentionally not presenting or deliberately omitting important information of financial statements; behaviors of intentionally misapplying, not complying with accounting principles in setting financial statements to cheat the users of financial statements"(Ministry of Finance, 2012) 2.1.1.3 Distinguish frauds with errors of financial statements To reinforce arguments for fraudulent behaviors of financial statements, it is necessary to differ errors of financial statements from fraudulent behaviors of financial statements to recognize the sophistication and seriousness of such fraudulent behaviors Although errors are far from fraud in terms of science, they still easily become confused in terms of influent factors Frauds and errors are all potential mistakes in the financial statements of enterprises, falsifying calculations reflected in the financial statements and hereby the actual business situation of enterprises.m In this thesis, the author focus studying fraudulent behaviors of financial statements due to spillover effects of this behavior to listed enterprises in Vietnam stock market and the sustainable development of listed companies in Vietnam stock market 7 2.1.2 Forms of fraudulent behaviors of financial statements The results of reaseachs by the COSO (2010), Ngo Thi Thu Ha (2007), ACFE (2012), Nguyen Thi Huong Giang (2013), Le Nguyen The Cuong (2013) show that the overblown declaration in profits / assets is the common form of fraudulent behavior of the financial statements by listed companies Thus, the thesis focuses on studying this common form The following characteristics of listed companies impact financial statements: - The number of shareholders: The number of shareholder of listed companies fairly complex and change from time to time, which is difficult to control - Mechanisms and Management: The operations of listed companies are controlled from many legal regulations within and outside company This is sources of pressure to the management of listed companies - The requirements of high transparency and very sensitiveness towards financial statements of listed companies: This could be motivations of fraudulent behaviors of statements in order to match with such requirements - Characteristics of business line of listed companies if complex and various will be difficult to detect fraudulent behaviors of financial statements, which requires auditors must be experienced, professional with multidisciplinary understanding and the auditing procedure must be professional - Monitoring business targets reflected in financial statements is fairly complex and often highly variable, which give opportunities for listed companies to make fraudulent behaviors of financial statements for its self-interest - The business of listed companies is usually different, may be in forms of parent company with subsidiaries, cross-investments, operating throughout the country, which make auditors difficult to detect fraudulent behaviors of financial statements if happens - The internal control systems of listed companies still weak 2.1.3 Execution engine of fraud financial statements In this thesis, the author generalizes some popular motivations of fraudulent behaviors of financial statements, namely financial stability, pressure from third parties and financial goals 2.1.4 Drawbacks of fraudulent behavior of financial statements For listed companies which have frauds in their financial statements, if they are detected, they will suffer serious consequences such as bankruptcy and severe reduce in prestige For investors who focus most on the efficient use of capital, if financial statements intentionally are frauds, their expectations for listed companies will become too high or too low and hereby directly affect the profitability of capital and even lose capital invested in For lenders especially the financial institutions like banks, they will be more risks when lending such businesses In case of such enterprise become insolvent, the system of banks will be affected in general and hereby reduce the national economic growth For tax authorities and related agencies: reduce the amount of tax payable and tax losses and hereby reduce the budget revenues of the state, adversely affecting the growth and prosperity of the country 2.1.5 Some common problems of the stock market and companies listed on the stock market affect financial statements 2.1.5.1 Stock market Under the Securities Law of Vietnam, No 70/2006/Congress 11 and amended by the Law No 62/2010/Congress 12, "Stock market is a market organized where buying and selling listed securities are implemented" 2.1.5.2 Companies listed on the stock market Features of listed companies affect financial statements 2.2 The theory applied to study fraudulent behaviors of financial statements of listed companies Historical development of research projects related to fraudulent behaviors through the platforms of theory as follows: - The theory of information asymmetry - Representative Theory - Scales theory of frauds based on red signs - Fraud triangle theory 10 2.3 Overview of research on influent factors towards fraudulent behaviors of financial statements of listed companies In addition to an overview of research on the topic, the thesis focuses summarizing relevant research on factors affecting fraudulent behaviors of financial statements which are considered in many different aspects Accordingly, groups of factors include: Qualitative methods are used to explore, adapt and complement the variables used to measure the factors and criteria used in the study, ensure the scale developed in accordance with theory and concretized by reality First, this method is implemented by studying documents and conducted a review of previous studies in Vietnam and in abroad, thereby determining the factors affecting fraudulent behaviors of financial statements Next, this method is implemented through in-depth interviews with experienced experts in securities, finance and accounting 2.3.1 Factors of motivation/ pressure - Financial Stability - Pressure from 3rd party - Financial Goals 2.2.1 Factors of opportunity - Characteristics of financial statements and business activities of listed companies - The quality of internal control systems - Business scale of listed companies - Characteristics of board of directors of listed companies - Legal environment - Macro - economic Environment - Independent audit - Control of the state 2.2.2 Attitudinal factors - Standards of professional ethics of leadership - Professional qualification of leadership - Awareness and understanding of leadership about legal system - Attitude, professionalism of the leadership CHAPTER 3: RESEARCH METHODS OF FACTORS AFFECTING FRAUDULENT BEHAVIORS OF THE FINANCIAL STATEMENTS OF LISTED COMPANIES IN VIETNAM STOCK MARKET 3.1 Qualitative methods 3.2 Quantitative methods The author used the results of interviews with such experts as the input for quantitative research methods In this method, the author used survey to statistical description of fraudulent behaviors of financial statements and conduct research hypothesis On the basis of theory, reality and results of situation analysis and expert consultancy, the author inherited the research model of triangular fraud and model of fraud scales to develop the research model of the thesis Based on such research models, the hypotheses set as follows: H: factors of pressure /motivation (DCAL), opportunity (CH), attitude (TD) of managers have impacts on frauds in setting financial statements of the nonfinancial companies in the stock market of Vietnam The factors selected for the survey includes 15 elements (3 factors of pressure/ motivation; factors of opportunity; factors of attitude of managers) These factors are assessed as popular and important factors through studies in Vietnam and over the world, results of in-depth interviews with experts in the field of securities, finance and accounting in Vietnam 11 12 Samples (selected respondents) to send the survey is the independent auditors Collecting data: Total votes that the author surveyed was 650, under two forms: Send by mail and send directly to the surveyed respondents Total votes surveys recovered 485 valid votes (accounting for 74.62%) The responses received had high reliability and expressed the respondents’ consciousness to the answer as well as their deep understanding of the questions in the survey Then declare and transfer the data in SPSS Test the reliability of the scale for the variable factors with Cronbach Alpha index Finally evaluating the results of descriptive statistics Financial Stability (H1) Group factors of motivation / pressure Pressure from 3rd party (H2) Financial Goals (H3) Characteristics and activities of the professions listed company (H4) The quality of internal control systems (H5) Scale listed company (H6) Characteristics of the board listed company (H7) Regulatory environment (H8) Group of opportunity factors Macro economic Environment (H9) Independent audit (H10) Control of the state for acts of fraud financial statements (H11) Standards of professional ethics of leadership (H12) Professional qualification of leadership (H13) Awareness, understanding of the law of leadership (H14) Group attitudinal factors Attitude, professionalism of the leadership (H15) Chart 4.1: Research Models FRAUDULENT BEHAVIOR OF THE FINANCIAL STATEMENTS Data processing method Step 1: Quantifying the standards of each group of factors by calculating the minimum value, maximum value, average value, standard deviation Step 2: Checking the reliability of scaling factors in the research model by the means of Cronbach's coefficient alpha reliability and coefficient correlation of total variation Step 3: Analyzing the factors explored EFA through SPSS 22 software processing to remove criteria of observation not meeting the standards Step 4: Correlation analysis: The correlation analysis said whether there is a relationship between variables in the model study with each other or not If the coefficient correlation is zero, the variables are independent of each other, other correlations of variables can see the have a relationship with each other Step 5: Analyzing multiple regression will indicate the level of influence of each factor to fraudulent behaviors of financial statements of listed companies in the stock market of Vietnam through the regression coefficients The form of Multivariate regression model study as follows: GL = α+ β1TC + β2AL + β3MT + β4NN + β5KSNB + β6QM + β7HĐQT +β8PL + β9KIỂM TOÁN VIÊNM + β10KTĐL +β11KSNN + β12DĐ +β13CM +β14NT +β15CN + ei 13 14 CHAPTER 4: RESEARCH RESULTS 4.1 Results of respondents’ demographic information The years of experience of surveyed respondents is over years in average, accounting for over 90% and the rate of auditors having experience in fraud detection is 76.7% These rates proved the reliability of the survey of factors affecting frauds financial statements at listed companies on stock market Vietnam for the result of the thesis 4.3.1 Results of descriptive statistics The results of the analysis run on SPSS shows that indicators of mean value (mean) and standard deviation (Std Deviation) are high, which implied that they are the factors affecting fraudulent behaviors of financial statements of the listed companies in the stock market of Vietnam 4.2 Findings of fraudulent behaviors of financial statements of companies listed on Vietnam's stock market 4.2.1 Results of descriptive statistics In terms of forms of implementing fraudulent behaviors of financial statements, the form of overdumbed declarations on profits / assets accounted for the highest average value at 2.91 points, comparing to other two forms of fraudulent behaviors of financial statements In particular, conditioned form profits / assets 2.85 points and the forms of frauds in understating (less common) profit / assets (2.74 points) In terms of evaluation criteria for the factors affecting fraudulent behaviors of financial statements of listed companies in the stock market of Vietnam The survey results show that the criteria used to evaluate the fraudulent behavior of the financial statements of listed companies usually based on criteria on how of sophisticated performance and how difficult to detect common (4.48 points), followed by the criteria of scale of fraudulent behaviors of financial statements implemented (4.71 points) and the criteria frequency of of such frauds (4.17 points) 4.2.2 Assess the reliability of the scale As a result of testing the reliability of the scale, Cronbach's alpha indices are greater than 0.8 demonstrate that the scale will ensure the reliability of measuring the popularity of the form, manner and items potentially frauds in setting financial statements and factors affecting fraudulent behaviors of financial statements in the stock market in Vietnam 4.3 The results of research on factors affecting fraudulent behaviors of financial statements of listed companies listed in Vietnam's stock market 4.3.2 Testing the reliability of the scale factors in the research model Results after testing the reliability of the scale of 15 factors in the research model evaluating the effects of these factors on fraudulent behaviors of financial statements of the listed companies in the stock market of Vietnam based on the Cronbach Alpha and generation system of total correlated variables to remove two criteria of measurement, namely the activity of testing, monitoring and degree of changes of tax policy because of their low correlation coefficients 4.3.3 Result of analysis to discover factors EFA The use of analytical methods to discover factors that will help the author abstract from many observed variables into the underlying components which represent the entire data By methods of analysis to discover factors, there is no distinction between independent variables and the dependent variable (Hair et al, 1998) Therefore, the author analyzed the factors explored with the same independent variables and the dependent variable in the model are analyzed separately To be able to apply the EFA analysis, variables must be interrelated To ensure the explanation of contents of the factors obtained from analysis results EFA, the author select criteria factors as follows: - Factor loading> 0.5 - 0.5