the country’s macro-supervision and regulation lose foundation, leading to significant financial, economic decision-making mistakes; on the other hand, creditors and investors may be led to poor decisions, their interests may be bruised, and reduce the efficiency of allocating resources in capital markets.
2.2 The Causes of Managers’ Intentional Bad Accounting Behaviors
Overall, as the agent of listed companies managers’ objective function is inconsistent with shareholders’ who is the principal, the relation between managers and stakeholders is also complex. Because managers get far more and earlier corporate information than other accounting information users, and the outsiders such as the shareholders, creditors weakly supervise the insiders -the managers which allows managers to actually control the enterprise, when conflict between various parts interests happen, the managers have the opportunity and the ability to engage accounting fraud so as to achieve their own interests (WANG, 2011). Specific analysis on the reasons for managers accounting fraud is as following:
3. RECOMMENDATIONS TO PREVENT MANAGERS’ BAD ACCOUNTING BEHAVIORS I N CHINA’ S LISTED COMPANIES
Actually, it is not easy to distinguish unintentional managers’ bad accounting behaviors from intentional ones in practice. But managers can do this themselves. To awaken managers’ social awareness of consciously reducing bad accounting behaviors, suggestions followed are respectively proposed in terms of two types of managers’ bad accounting behaviors.
3.1 Suggestions on Keeping away from Managers’ Unintentional Bad Accounting Behaviors
3.1.2 Strengthen the Continuing Education on Management
Through a variety of job training, study tours outside the listed companies, further education and teaching-himself, we can expand the manager’s professional knowledge and skills, develop their good habits of thinking and behavior, promote them to keep up with the developments of accounting theory, accounting standards and accounting laws and regulations, attach great importance to the construction of basic accounting work, continuously improve the company’s rules and regulations, strengthen the accounting staff in-service training, then accounting standards can be gradually, steadily improved and accounting plays an real important role in the management of listed companies.
3.1.2 Perfect the System of Internal Accounting Controls and Strictly Implement it
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The priority to sound system of internal accounting controls and strict implementation of it is to make managers pay more attention to internal accounting controls, then consciously strengthen the internal audit system which includes these actions: setting up the internal audit institution led by the board of supervisors and audit the daily operations of accounting, guaranteeing a high degree of independence of supervisory staff; ensuring separation of incompatible duties, such as: authorization to execute a particular transaction and executing duties; performing duties on certain business and auditing duties to these; performing a particular transaction and recording the business; custody of certain property, materials and recording them; custody of certain property, materials and checking duties; general ledger and subsidiary ledger duties; journalizing and general ledger duties, etc.
3.2 Precautionary Measures to Managers’ Intentional Bad Accounting Behaviors
3.2.1 Improve Corporate Governance
The quality of accounting information relies on the corporate governance, it is the result of struggle among relative parties of corporate governance. Balancing the strength of variety parties can effectively prevent the managers’ bad accounting behaviors and truly improve the quality of accounting information (XU, 2011). Dargenidou, McLeay and Raonic (2007) considered that more stringent corporate
governance practices can help investors overcome the weaknesses of the legal protection terms in Europe.
First of all, the managerial ownership should be properly handled and appropriate management incentives should be established to avoid short-term behavior of managers. Secondly, the structure of the board members and the independence of the Board must be improved so as to effectively bind the managers’ financial reporting fraud. So, we should not only increase the proportion of independent directors in the Board and continue to improve the independent director system, but also prevent the chairman or vice chairman and general manager duties on one person. To effectively perform the independent director system, we can start from three aspects: First, chose independent directors from external institutional investors, conforming to formal independence and substantial independence. Secondly, provide independent directors with remuneration commensurate with monitoring
responsibilities, in order to mobilize their enthusiasm and sense of responsibility. Third, clearly define the powers and duties of independent directors as well as negligence penalties to ensure the independent directors have full motive power and pressure to supervise the company.
As to “Dandong Chemical Fiber”, the proportion of independent directors was 33.33% from 2003 to 2005, it is 25% in 2006 and increased to 42.86% in 2007. According to China Securities Regulatory Commission administrative penalty notice, Dandong Chemical Fiber were involved in violations of accounting information disclosure from 2003 to 2006 but were not in 2007, indicating a high proportion of independent directors of listed companies had some restraining effect on executives accounting fraud.
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3.2.2 Strengthen the External Oversight
We should improve the social supervision system and steady the comprehensive and authoritative supervision of accounting. First, inspect companies’ accounting practices relying on social forces as CPA and strengthen the supervision of certified public accountants as well as accounting firms, promoting them to increase ethical standards and professional quality. Clear the legal liability of CPA to review and verify accounting information, develop and strictly enforce specific penalties for irresponsible or unethical CPAs to increase the cost of financial fraud (LIU, CHEN, ZHENG, 2010). Secondly, the China securities Regulatory Commission should carry out greater scrutiny, while mobilize tax authorities, financial sector, the public and other intermediaries to monitor the accounting practices of listed companies. Finally, the aforementioned means of accounting fraud in table 1 can be divided into three types: income statement fraud, the balance sheet fraud, concealment or improper and late disclosure of significant issues (LI Si-long, 2008).
Therefore, the internal audit department, accounting firms, regulatory authorities and other relevant agencies can focus on items listed in Table 1 from corporate income statement, balance sheet and the notes as censoring and inspecting accounting information of list companies
3.2.3 Mature the Accounting Regulations System
On one hand, we should build a scientific, rigorous, coordinated and uniform system of accounting regulations after overall planning the system and content of different accounting laws or rules, on the other hand, we should complement and revise the accounting standard in time to avoid leaving vacuum for the innovation business so that minimize the manipulation opportunity by accounting policy choice. At the same time, we need to improve the feedback process of accounting standards. For accounting regulations have been promulgated, the implementation effect and problems reflected should be investigated.
In particular, the views and suggestions fed back from accounting practitioners should be closely concerned, which enable accounting regulations to be timely revised and improved and accommodate themselves to developed economy.
3.2.4 Promote the Healthy Development of Financial Markets
As the advanced form of modern enterprises, listed companies are essentially different from private companies, which are closely related with the financial markets, especially the stock markets. Financial markets are important channels for listed companies and investors and also the occasion of optimal allocation of resources in society as a whole. Darrough and Stoughton (1990) analyzed incentives of voluntary disclosure and found that corporate disclosure of proprietary information would help financial markets to more accurately assess the enterprise although provided information to potential competitors at the same time. Fernandes and Guedes (2010) found that companies fraudulently announced revenue was
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positively related to expected economic performance, but was negatively correlated to economic performance realized. These studies show that healthy, well-established financial markets can truly reflect the past of listed companies and can reasonably predict the future of them. When the financial markets valuation mechanism is perfect day by day and investors gradually rise their overall quality, phenomenon that deceived by false information will be greatly reduced, managers deliberately bad accounting will lose opportunities to gain profits, thereby reducing the illegal motivation; simultaneously, the resources configuration function of financial markets can also force the listed companies with apparent problems to rectify as soon as possible to avoid suspension or delisting, so managers unintentional bad accounting practices can be corrected.
CONCLUSION
This paper breaks the routine that managers’ bad accounting behaviors just means accounting fraud, divides managers’ bad accounting behaviors into intentional bad accounting behaviors and unintentional ones. Then, it discusses respectively the manifestation and the causes of the both. It concludes that the managers’ unintentional bad accounting behaviors of listed companies in China mainly reflect in less rigorous accounting basis, nonstandardized accounting process, formalized internal accounting controls and other aspects. The fundamental reason is that managers are of limited rationality.
Managers’ unintentional bad accounting behavior is an objective reality and can not be completely avoided, but it would be reduced through sound continuing education on managers and improvement of the company’s internal accounting system. As a typical of managers’ intentionally bad accounting behaviors, accounting fraud includes such seven categories as false revenue, false investment income, inflated assets and concealment of important matters and so on. The causes of them contain defective corporate governance, weak external supervision, immature accounting regulations. We can improve corporate governance, strengthen the external oversight, mature the accounting system of norms and promote healthy development of financial markets and other measures to prevent accounting fraud. This paper argues that: in practice, it’s not easy to distinguish managers’ intentional bad accounting behaviors from unintentional ones, but the managers can do. Therefore, the above suggestions are able to play a role.
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中国上市公司管理者的不良会计行为
摘 要
管理者有意或无意的不良会计行为将导致上市公司会计信息质量差，从而在很大程度上干扰投资者，造成资本市场混乱，不利于反映绩效管理责任。研究中国上市公司管理者的不良会计行为具有重要意义，即改善管理，优化社会资源的分配。本文分别讨论了管理者无意和有意的不良会计行为的表现形式和原因。它也提出了防止中国上市公司管理者的不良会计行为的建议，通过提高工作效率和上市公司会计信息质量，来维护利益相关者的利益，并为资本市场提供良好的环。
关键词：不良会计行为；管理者；上市公司；会计信息质量
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