ABC테크 회계부정에 관한 사례연구

This paper explores an accounting fraud case of ABC Tech. Its frauds were mainly related with overreporting accounts receivables and booking unreasonable accounting estimate for allowance for bad debt. Although these fraud techniques are typical and well known to the auditors, theses fraud schemes were successful for several years. Thus, we investigate how accounting information was manipulated by the company and why these frauds were not discovered through regular internal and external audit procedures. And we discuss whether outside investors could detect these fraudulent manipulation in advance. ABC Tech is a car diagnostic scanner company established in 1990. Its business was successful along with booming of high tech cars with expensive and complex electronic systems and they went public in 1999. But its new multimedia business failure in 2001 made the company hard to maintain the minimum requirement to remain listed. After all, the company manipulated financial statements under financial pressure. First, they report fictitious accounts receivables after receiving money from the customer to inflate its receivables. Second, the company understated the allowance for doubtful accounts to decrease expenses. In 2008, FSS(Financial Supervisory Service)’s inspection revealed that financial statements were manipulated by the company. In this paper, we analyse this fraud case from various points of view. As various information such as financial information, management information and important business environment change etc, is freely available to the public via DART system(Korea’s equivalent to EDGAR), we conduct detailed examinations of the company’s accounting information and business environment analysis. First, we explain the accounting fraud schemes and calculate its effects on financial statements. We also suggest adjusting journal entries and correct financial statements. This procedures reveal the company’s intention to meet the listing requirement. Thus this analysis shows the whole picture of fraud structure and financial consequence of the financial manipulation. Second, the company’s disclosures are thoroughly examined. Especially non-financial disclosures are investigated. They showed typical warning signs that the company might be fraudulent. The company reported unusual related party disclosures and invested in the companies which are not related with their business. And the CEO and CFO were changed without reasonable explanation. They conducted small amount of seasoned public offerings frequently which showed the lack of cash flows. Third, we conduct basic financial ratio analysis. The profitability, solvency, liquidity and stability of the firm are investigated. This procedure shows that the company’s business was getting worse in profitability and solvency. And we find that accounts receivables turn over ratio was dropped sharply. This implies that there might be a problem in the timely collection of accounts receivables. Fourth, we investigate auditors’ audit procedures were reasonable. We obtain a FSS investigation report about the audit firm’s audit procedures related with the company’s fraud. This report shows that auditor’s procedures were not enough to find out the company’s fraud. We also compare the audit hour and audit fee of the company with the average figures of matched firms. As a result, the company’s audit fee was higher than the average but the audit hour was lower than the average. Based on these findings, we try to show how accounting information is useful for investors to detect signs of insolvency in the firm. Especially, accounting information users need to know the limitations of audited reports and financial statements. We believe that this case provides a good example to learn how the accounting fraud works and how to find it.