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Table of contents
Table of contents……………………………………………………………………………………………… 1
Research on the Accounting Sincerity Crisis in China…………………………………………… 3
1. Chapter one: Introduction…………………………………………………………………………… 3
1.1 Definitions of key concepts……………………………………………………………….. 3
1.2 Research background……………………………………………………………………….. 4
1.3 Research significance……………………………………………………………………….. 4
1.4 Report objectives……………………………………………………………………………… 5
1.5 Structure of the research……………………………………………………………………. 5
2. Chapter two: Literature review……………………………………………………………………. 6
2.1 Review of the major relevant events (financial and accounting scandals and development of the accounting industry)…………………………………………………………………………………. 6
2.2 Reasons of the accounting sincerity crisis……………………………………………. 7
2.2.1 A weak corporate governance system………………………………………… 7
2.2.2 Corporate and social culture…………………………………………………….. 9
2.2.3 Over interference of the government……………………………………….. 10
2.3 Impacts of the accounting sincerity crisis…………………………………………… 11
2.4 Ways and techniques to tackle the accounting sincerity crisis………………. 12
3. Chapter three: Research methodology………………………………………………………… 14
3.1 Research objectives………………………………………………………………………… 14
3.2 Research strategy……………………………………………………………………………. 14
3.3 Research method……………………………………………………………………………. 15
3.4 Research instrument……………………………………………………………………….. 15
3.4.1 Advantage of questionnaire……………………………………………………. 15
3.4.2 Disadvantages of questionnaire………………………………………………. 16
3.5 Sampling……………………………………………………………………………………….. 16
3.6 Data analysis………………………………………………………………………………….. 17
4. Chapter four: Analysis of data…………………………………………………………………… 18
4.1 Damages and consequences of accounting sincerity crisis – stakeholder analysis 18
4.1.1 To the management……………………………………………………………….. 18
4.1.2 To the shareholders……………………………………………………………….. 18
4.1.3 To the accountants and accounting firms………………………………….. 19
4.1.4 To the society……………………………………………………………………….. 20
4.1.5 To the employees…………………………………………………………………… 21
4.1.6 To the creditors…………………………………………………………………….. 21
4.1.7 To the customers…………………………………………………………………… 22
4.1.8 To the normal Chinese companies……………………………………………. 23
4.2 Reasoning the accounting sincerity crisis through a survey………………….. 24
4.2.1 A weak corporate governance system………………………………………. 24
4.2.2 Coexistence of both accounting and auditing firms…………………… 24
4.2.3 Lack of auditing professional…………………………………………………. 25
4.2.4 Lack of strong understanding of the importance of ethics in practices 25
4.2.5 Weak regulations & excess political interference……………………….. 26
4.2.6 Poor information disclosure and information access………………….. 28
4.2.7 Lack of awareness of the protection of investors………………………. 29
4.3 Critical analysis and discussion………………………………………………………… 29
5. Chapter five: Summary conclusion…………………………………………………………….. 30
5.1 Conclusions…………………………………………………………………………………… 30
5.2 Recommending solutions to solve the accounting sincerity crisis………….. 31
5.2.1 Need for a culture change………………………………………………………. 31
5.2.2 Integrate highest ethical standards into the corporate culture and procedures 32
Appendix 1.0 Questionnaire on the university accounting students in China…………. 41
Research on the Accounting Sincerity Crisis in China
1. Chapter one: Introduction
1.1 Definitions of key concepts
Accounting is generally referred to as the language of business. The most frequently quoted definition is the one, coined by the American Institute of Certified Public Accountants as, “the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character, and interpreting the results thereof (Rajasekaran 2011, p. 1). Over the years, there are many more definitions of accounting formed by various researches, studies and professional institutes. And according to the American Accounting Association, accounting is the process of identifying, measuring and communicating economic information to permit informed in a judgments and decisions by users of the information (Patra 2006, p. 1). The accounting sincerity, or the principle of sincerity is one of the Generally Accepted Accounting Principles (GAAP) which is a codification of how CPA firms and corporations prepare and present their business income and expense, assets and liabilities on their financial statements (Epstein, Bragg & Nach 2010), it refers to the good faith of the individual preparing the accounts but also his or her worry of describing adequately, loyally, clearly, precisely and completely financial transactions and events (Sale 2001, p. 236). A similar concept is the principle of integrity which is the characteristic meaning that an accountant needs to be honest when dealing with the relevant parties (Loughran 2011, p. 56). Another area that we will talk about in this project is the company culture which could be defined as the attitudes, values and ingrained behavior that shape and gukle how well or poorly work and like a societal culture; it is the product of evolutionary changes over many years. And it is believed that a strong company culture binds people together, gives a shared vision and facilitates communication and people know about what are expected to do and every new person is gradually inoculated with the corporate culture, attitudes and vision (McCann 2000, p. 148).
1.2 Research background
Despite its rapid economic development over the last three decades since the implementation of the reform and opening up policy in the late 1970s, the Chinese system is said to be embedded with financial scandals and creative accounting practices (Jones 2011, p. 180). Last year accounting scandals had been accumulating in small to mid-cap companies in China, and some of them have been allegedly set up as shell operations to roll over the revenue to family members rather than to shareholders. The big six auditing firms are in the cross hairs of a growing number of lawsuits. For example, Deloitte Touche Tohmatsu is one of them. It’s being sued by Starr Investments, a fund set up by ex-AIG chief executive Maurice Greenberg, for its involvement in auditing the books of China Media Express (CCME). Under pressure, Deloitte was forced to cancel its client relationship with China Media — a $72 million outdoor advertising company — because it could no longer verify China Media management’s claims (forbes.com 2011). Therefore the word “Accounting Sincerity Crisis” had since then again been mentioned frequently; this project paper will be dedicated to the research of this issue and provide in-depth research into the root reasons behind the crisis as well as providing recommendations based on the current accounting practices in China.
1.3 Research significance
With the rapid raise of the Chinese economy in the global arena depending on the low labor cost, undervalued currency as well as an investment and export oriented growth model, China is gradually lose its competitiveness to the raising competitors, for example, China is losing its edge as the world’s cheapest place to manufacture goods, a new report suggests and countries such as Indonesia and Bangladesh are benefiting most as rising costs in China force firms to switch production (bbc.co.uk 2011). Therefore, it is necessary for China to build up an image as a stable, open, reliable and trust worthy economy partner in the global market to strengthen the investment as well as other economic activities. The most recent Accounting Sincerity Crisis in China has seriously damage such a good image building, hence our research will be meaningful to assist build up a health accounting industry and contribute to a continual economic development in the most populous country in the world through reasoning the Accounting Sincerity Crisis and providing solutions to control and mitigate the problem.
1.4 Report objectives
We would like to rationalize the current accounting sincerity crisis in China theoretically by reviewing the relative theories and events that had been studied; also we would like to conclude the root reasons behind the crisis by understanding how the accounting students who represent the future trend of the accounting industry in China view the crisis. And the impacts of the crisis would be examined by checking the interests in the view of the major stakeholders. And the ultimate target would be to provide practical and theoretically viable solutions to the accounting sincerity crisis in China.
1.5 Structure of the research
This paper is divided into four parts. The first part is foreword. It briefly describes the research background, the significance, the present situation of domestic and foreign researches about the accounting sincerity crisis related issue. The second part defines the content on accounting professional ethics and discusses the economic and social consequences of the accounting sincerity crisis with the reference to the finance cheating cases. The third part on the basis of the deep analysis and use all kinds of theories analyzes the root reasons behind the crisis, and also a self report questionnaire will be used to collect the first hand data from the accounting students regarding their attitude and acknowledgement of accounting students to the current “Accounting Sincerity Crisis”. The third part of study is followed the recommended solutions to resolve or reduce the possibility of the loss of accounting sincerity which is the final part of this study.
2. Chapter two: Literature review
2.1 Review of the major relevant events (financial and accounting scandals and development of the accounting industry)
On June 2, Muddy Waters Research accused mainland Chinese plantation tree owner Sino-Forest Corporation of overstating the extent of its timber holdings and committing other instances of fraud. Investors took fright and drove down the stock price of the Toronto-listed company (cfoinnovation.com 2011).
On 8 June 2011, Taomee Holdings Limited (TAOM.N) (a Chinese company operating a website for children, which plans to sell shares in an initial public) disclosed that its auditors found major gaps in its internal controls, and material weakness was observed that there was a lack of sufficient accounting resources and expertise necessary to comply with U.S. GAAP (Generally Accepted Accounting Principles) and to prepare and review financial statements and related financial disclosures under U.S. GAAP for SEC reporting and compliance purposes (reuters.com 2011).
On 10 June 2011, the Public Company Accounting Oversight Board in Washington rejected Hong Kong-based Zhonglei CPA Co.’s application to become a U.S. auditor, citing an inability to inspect its work for companies based in China. It was the first time the PCAOB blocked an auditor since toughening rules in October (bloomberg.com 2011).
In September 2011, the Variable Interest Entity (VIE) which is a structure that had allowed Chinese companies to list their shares in US Exchanges through “reverse mergers” (A reverse merger is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public) had come under the scrutiny of Chinese regulators, the China Securities Regulatory Commission (CSRC), which had asked the State Council to take action against VIEs (forbes.com 2011). Triggered by this tightening enforcement of rules allowing foreign ownership of Chinese companies to be listed in the US, the share price of many Chinese listed firms had dropped largely in the US stock market.
On October 26th 2011, the SEC closed debate on a proposal to adopt “seasoning” requirements for companies listed on public exchanges, such as NASDAQ and NYSE. The proposed seasoning requirements aim to protect investors from a rash of accounting scandals perpetrated by companies that have avoided normal reporting and auditing requirements through the strategic use of reverse mergers. Many of the companies that have been engaging in reverse mergers and perpetrating these accounting scandals have been based in China, which have caused US investors to flee from Chinese equities (berkeleylawblogs.org 2011).
2.2 Reasons of the accounting sincerity crisis
2.2.1 A weak corporate governance system
In term of the reasons of the accounting sincerity crisis, according to Michael Jones (2011, p. 180) that the emergence of financial scandals that have been identified have reflected the existing problems and weaknesses in the China’s financial system which includes but are not limited to: a weak corporate governance system, the lack of effective accounting and auditing professional, weak regulations and poor information disclosure and protection of investors’ rights. Mark Hirschey (2003, p. 43) claimed the agency problems had increase the viability of the creative accounting information and thus false financial reports as compared with outside shareholders, management inside the firm has access to more and better information concerning the firm’s relative performance and investment opportunities. And based on the view of Jean Tirole (2006, p. 301), the agency problems happen when management may boost short term profit through desirable and undesirable means: when faced with the threat of firing, liquidation or merely restricted freedom, management may have an incentive to inefficiently inflate short run performance at the cost of long-term loss that exceeds the short-term gain, a behavior often called “management myopia”, and this behavior is rational from the manager’s perspective , though “myopia” refers to the perception of an external observer who witnesses a short-term orientation and fails to account for the agency considerations inherent in such behaviors. And also because managers are themselves responsible for the collection and processing of accounting information, they control the reporting mechanism designed to monitor managerial and firm performance. And incentive pay plans linked to accounting performance offer more than just incentives for efficient operating and financial decision which stimulate the earning manipulation using creative accounting.
Also in corporate governance literature, auditors are assumed as important external governance mechanism to detect and correct misconduct and violation of firms (e.g., Becker et al. 1998; Bartov et al. 2000). Bartov et al. (2000) find the association between the accounting discretionary and poor corporate governance, suggesting that weak corporate governance including poor audit quality encourages the managerial opportunisms. This explains the high possibility of companies’ engaging in the creative accounting from view of the lack of matured corporate government systems.
2.2.2 Corporate and social culture
Another point of view explaining the rationality of the creative accounting is that the firm culture could also contribute to the formation of creative accounting and financial report scandals. As explained by Jonathan E. Duchac, James M. and Reeve, Carl S. Warren (2007, p. 25), through their behavior and attitude, senior managers of a company set the firm culture and when the leader of a company is put on a pedestal, they begin to believe they and their organizations are one of a kind, that they are changing the face of the industry, and the senior managers in many cases of the scandals, the senior managers actually help create a culture of greed and indifference to the truth. Such culture flows down to the lower level managers creating an environment of short cuts, greed, and lies that ultimately resulted in financial fraud and accounting scandals. Corporate culture in China represents not only the business culture but also the long term existing Chinese culture which put a lot of focus on the image building, or to put it simply the Chinese people do not want to lose face whether in personal life or business life. Therefore in China, due to special provisions of the regulatory authorities, the companies engage in creative accounting motivations in addition to protecting corporate image to maintain the stock price, reflect the management’s operating performance, etc., there is also raising prices of stock issues to strive for allotment qualifications, to avoid the company’s suspension, delisting and so on (Chorafas 2006). Therefore we can see that corporate culture does play an important role in cultivating the current accounting sincerity crisis in China.
This culture focus on image building is not only seen in the private sector but also led by the public sector. For example, in the mid of 2011 soon after the global financial crisis, China like many other governments was exposed with financial risk or debt crisis because the local governments had been spending very ambitiously during the implementation of the huge record stimulus package to sustain the growth of the economy, the regulators announced to write-off between 2 trillion ($309 billion) and 3 trillion yuan of local government debt, to reduce the risk of a wave of defaults that would threaten the stability of the world’s second-biggest economy (chinadaily.com.cn 2011). Such write-off of debts has been widely understood as not only to eliminate the financial risk and sustain the economy health, but also considered as behavior to save the image of the country because such behaviors are not acting in accordance with the rules of the market. In addition, the Chinese GDP numbers are also widely criticized for the possibility of being overstated. And even many Chinese believe that the numbers released by the government is not trustworthy. Therefore, the culture of protecting the image seems to be to some degree contributing to the creative accounting behaviors and the false and fabricated financial reports.
2.2.3 Over interference of the government
One more view about the reasons behind the Chinese firms that are linked with the creative accounting problems is the over interference of the government which usually happens among companies that have an origin of being the state owned enterprise. China is a socialist country whose economy is characterized by public ownership. The budget system bears some unique features that have a significant impact on budgetary accounting. And such systems are extended largely to the state owned firms (Jorge 2008). For example, Lantian Stock which was China’s first state-owned agricultural enterprise to have gone through the corporatization reform in mid 90’s. Since its listing in 1996, Lantian Stock had recorded a dazzling performance in its financial statements. However, its resplendent image was smashed by an academic researcher, Liu Shuwei with her powerful 600-word article that pointed out the liquidity crisis of Lantian Stock (hbr.org 2009). Studies later find out that one of the major reasons behind this accounting scandal is the close relationship between the management of the company and the local government which continues after the listing of the company as a public through a privatization process in the statement own firms reform, and because the financial performance of this large company had great impact over the performance of the local government, hence the local government’s firmed support in term of providing loans actually contribute to the accounting scandal and the viability of the making the creative accounting practices. Therefore in China, without understanding the clear relationship between the companies and the governments in term of cooperation or conflicts of interests, one can not understand how some accounting frauds could last for so long without being spotted though such relationship is being weakened through the political as well as the further state owned enterprises reform efforts. In another perspective, the governments’ behaviors to build up their image as powerful local economies could also be understood as the so called “face project” which is the true reflection of the Chinese culture to maintain “face”.
2.3 Impacts of the accounting sincerity crisis
In term of the impacts of the accounting sincerity crisis, many literatures have sufficient description about it. For example, as claimed by Thomas A. Lee (2006, p. 216), creative accounting practices for purposes of earnings management and other reporting manipulation is unacceptable under circumstances but it could start with the intention of assisting the reporting company to survive. But it could quickly lead to accounting adjustments that are intended to be deceitful and could often lead significant accounting misstatement in corporate financial statements. And when there should be an accounting sincerity crisis within which many account frauds and creative accounting practices are spotted, there could be significant consequence which is different from single such events. One way to analyze the full impacts of an event is to perform a stakeholder analysis which involves identifying and prioritizing key stakeholders, assessing their needs, collecting ideas from them and integrating this knowledge into further stakeholder management practices (Harrison & John 2010, p. 12). And according to Michael Jones (2011, p. 479), and impacts of accounting scandals could be both short term and long term basis. And the direct impacts of the accounting scandals would be placed on those with immediate interest relationship and many of them are insiders such as the senior manager and the accountants while the long term based impacts are usually the aftermath of the scandal typically those impacts on the outsider stakeholders such as the customers, government and the society. For example, Jilin Zixin Pharmaceutical Industrial Co Ltd is a famous Chinese company that operates in the Medicinal and botanicals sector. Jilin Zixin Pharmaceutical Industrial Co., Ltd is principally engaged in the research, development, manufacture and sale of traditional Chinese patent drugs, as well as the plantation of medicinal materials. But in the last month, the Chinese Institute of Certified Public Accountants (CICPA) which is an organization under the guidance of the Ministry of Finance and the Council filed a penalty on the Zhong Zhun Accounting Firm for its irresponsibility in the job of clearly disclosing the full relationship that the company has with the suppliers and major clients in term of the conflict of interests because some of these parties also hold the share of the Jilin Zixin Pharmaceutical Industrial Co., Ltd though the investigation of the Jilin Zixin accounting scandal case is not yet clear as the related authorities are still handling the case. Therefore we can see that the relative accounting firm is probably the first and most immediate responsible party that is impacted by the accounting scandals (cqn.com.cn 2012).
2.4 Ways and techniques to tackle the accounting sincerity crisis
According to Michael Jones (2011) the solutions to the creating accounting and the sincerity crisis should follow two major principles: long term view and realistic. The long term view principle insists on healing the problem fundamentally through the major changes in the company’s structure as well as the company’s culture and business goal setting and the principle of realistic requires that company should find out the methods that are possible and reliable based on the company’s practical situations rather than being possible only theoretically.
In term of some detailed techniques and methods, Mitchell, A., Puxty, Ag., Sikka, P. and Willmott, H. (1993) recommended that annual reports should be systematic, future oriented, registered within ninety days of the year end, and should contain information on the market values of fixed assets, cash flow data, and the analysis of current assets and liabilities and in addition, they urged the profession to outlaw, or rigorously standardize the control, the major creative accounting practices which they had identified. Another technique used to tackle this problem is to better define the role of the management. Based on the view of Ahmed Riahi-Belkaoui (2004, p. 54), accounting regulators have tried to limit the management’s ability to use accounting changes to increase or decrease income. Since 1970s, there had been increasing requirements that accounting changes should be accounted for as a cumulative effective change, requiring the reporting in the comparative income statements of the cumulative effect of change in the net income of the period of the change as well as the disclosure in the notes of the effect of adopting the new accounting principle on income before extraordinary income and net income (and on rotated per share amounts) of the period change. One more technique is to enforce the accounting rules. According to Colin Barrow and John A. Tracy (2008) because everyone reading a financial report is entitled to assume that GAAP (generally accepted accounting principles) have been followed, it would important to ensure that such principles are enforced. And the basic idea behind GAAP is to measure profit and to value asset and liabilities consistently from business to business to establish broad scale uniformity in accounting methods for all businesses. The idea is to make sure that all accountants are signing the same tune from the same hymnbook. And the purpose is also to establish realistic and objective methods for measuring profit and putting values on assets and liabilities. When these GAAP (generally accepted accounting principles) have been enforced and followed, many creative accounting practices would be avoided and eliminated. Therefore the enforcement of rules is important.
3. Chapter three: Research methodology
3.1 Research objectives
This research aims at achieve four major targets: a) what is the rationality behind the current accounting sincerity crisis in China by reviewing the major accounting scandals; b) what are the major impacts and cost of the accounting sincerity crisis; c) how the accounting students think about the crisis and whether there is already a sincerity crisis among the accounting students; d) what could be done to assist the resolution of the current crisis.
3.2 Research strategy
Qualitative research based on the literature review as well as the evaluation and summary of the own survey in this study would be used to extract the reasons of the current accounting sincerity crisis in China. We choose the qualitative research for two major reasons: first of all, quantitative data is not available in the accounting industry in China regarding the scandals; and secondly, the accounting sincerity is more closed to a business ethics issue and therefore is a quantitative problem and it should be appropriate to be examined using a qualitative research. But there are also some disadvantages of using the qualitative research, for example, some phenomenologists state that quantitative research is to some extent simply like an artificial creation by the researcher, as it is asking only a limited amount of information without explanation (surrey.ac.uk 2009), to avoid this advantage of using the qualitative research, in the following study we will work hard to identify the problems as well as rationalize the problems with careful explanations and analysis based on the data we have collected.
3.3 Research method
A major research method is we survey the accounting students to examine current accounting sincerity crisis with the assumption that the crisis could also be reflected through the group of accounting students who have been exposed with the industrial practices in their study and also internship and the most importantly, their expectation of the future job will also influence the changes and development of the crisis.
3.4 Research instrument
The choice of methodology / of the Research Instrument is where the researcher chooses the data collection tool, such as a survey, experiment, etc. to achieve the research objectives. Choosing the Research Instrument is done after conceptualization and the choice of units of analysis & must be done before operationalizing concepts via construction of the instrument (uvawise.edu 2010). And self report questionnaire will be used to collect the first hand data from the accounting students regarding their attitude and acknowledgement of accounting students to the current “Accounting Sincerity Crisis”. The self report questionnaire is a type of survey, questionnaire, or poll in which respondents read the question and select a response by themselves without researcher interference, it involves asking a participant about their feelings, attitudes, beliefs and so on (Siegel & Welsh 2009). The questionnaire will be delivered to the accounting students via the form of an online survey. Also second hand data would be collected from the news paper, magazine and other text book and online resources to assist the reasoning and discussion with the appropriate reference.
3.4.1 Advantage of questionnaire
In term of advantages of questionnaire, the online survey will be of great convenience and easy to be carried out on large volume of accounting students because students could do it by themselves. For example, structured questionnaire could of great value because respondents provide answers that fit into a range of options offered by the researchers, these allow for the speedy collation and analysis of data by the researcher (Denscombe 2007, p. 170). In addition, the structured computer based survey would also make the data summary work become easier. And using the form of online survey will have another advantage. Because the research questions and answers are designed in the computerized manner, they could be designed in such a way that complete questionnaires could be fed straight into a data file which means that human effort caused by the manual evaluation of the answers from the respondents could be largest mitigated.
3.4.2 Disadvantages of questionnaire
In term of disadvantages of questionnaire, because the accounting students are invited to do the survey online, there is lack of onsite monitoring about how the survey is done and there could be possibility that they did not treat the survey seriously. In addition, there tends to be a self-selecting bias. Because not everyone who receives the questionnaire replies and returns it, therefore, there is a self-selecting bias. Those who return their questionnaire may have attitudes, attributes or motivations that are different from those who do no. Hence, if the response rate is very low, the findings may not be representative of the total study population (Kumar 2005, p. 130).
In term of sampling method which refers to the rules and procedures by which some elements of the population are included in the sample. Some common sampling methods are simple random sampling, stratified sampling, and cluster sampling and etc (Stattrek.com 2011), and in our research we have adopted the simple random sampling which refers to the sample that consists of individuals from the population chosen in such a way that every set of n individuals has an equal chance to be the sample actually selected (ma.utexas.edu 2009), and to ensure that each accounting students are equal chance to be picked up to be part of our research, we randomly pick up 3 universities and invite the accounting students to join our participation, and also because the collected answers exceed 100 which is the set sampling number, we randomly pick up only 100 of them and replacement will also be done in the simple sampling method when some of the selected answers are considered as ineffective. There are two major advantages of using a simple sampling method in this research: first of all, it is also considered as a fair way of selecting a sample from a given population since every member is given equal opportunities of being selected (experiment-resources.com 2010), by randomly pick up three universities as the surveyed audience, we ensure that each accounting student will have the chance to be selected to be part of our study; the second advantage of using a simple sampling method in this research is that it is easy to be implemented and cost less than other sampling methods. Students in the major of accounting will be invited to join this online survey, a sampling of 100 is defined, and to ensure the desired number of effective response, 120 students are invited to be part of the survey.
3.6 Data analysis
Data Analysis is the process of systematically applying statistical and/or logical techniques to describe and illustrate, condense and recap, and evaluate data. According to Shamoo and Resnik (2003) various analytic procedures “provide a way of drawing inductive inferences from data and distinguishing the signal (the phenomenon of interest) from the noise (statistical fluctuations) present in the data”. Data collected in this study through various channels would be analyzed through a comprehensive data analysis process which includes data cleaning, initial data analysis, main data analysis and final data analysis in order to inspecting, cleaning, transforming the data with the goal of obtaining useful information, drawing conclusions and making recommendations.
4. Chapter four: Analysis of data
4.1 Damages and consequences of accounting sincerity crisis – stakeholder analysis
The so called accounting sincerity crisis would have significant impacts and influences over the various stakeholders, a stakeholder is an individual or a group that has one or more of the various kinds of stakes in the organization (Carroll & Buchholtz 2009, p. 84), below we will perform a stakeholder analysis to examine the damages and consequences of accounting sincerity crisis.
4.1.1 To the management
According to Michael Jones (2011, p. 498), impacts of the creative accounting practices and financial scandals could be long term as well as short term basis, the most direct and immediate impact are on the manage as well as the involved accountants and accounting firms that have contributed to the fabrication of the accounting information. In many examples, the director and other higher management are put into prison for the violation of the related legal and government regulations. For instance, A Shanghai listed retailer Zhengzhou Baiwen in September 2002 was fined 2 million yuan by the CSRC (China Securities Regulatory Commission) for fabricating profits, issuing false information and misallocating company funds between 1992 and 1998 and several official of the company were also fined for their roles in the scams (Campbell & Woodley 2004, p. 97). According to our research, when asked “26 If you are the HR head of a company, would you consider hiring a very capable manager who had contributed to the creation of false accounting information?”, 67 per cent survey student choose a clear “not possible” indicating that the manager who had been involved in such creative accounting would not be preferred by the HR of the other employers though he or she could be very capable and performing.
Chart 1 Summary of answers to question no. 21
4.1.2 To the shareholders
As known to us, shareholders are the owners of the companies, hence, any major events that have impacts on the companies’ operational and financial performance will have direct influences over the economic interest of the shareholders. One famous example from which we can see the impacts of a financial scandal regarding creative accounting is the Enron case. Enron began as nothing more than a Houston based Pipeline Company in 1985, but expanded radically during the years of Reaganomics and in the long expansion of dot.com era under Bill Clinton. And by the beginning of the 21 century, Enron was already a giant middle man working like a hybrid of traditional exchanges, making money between selling and buying price (Axelrod & Phillips 2008, p. 363). By December 31, 2000, Enron’s stock was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market’s high expectations about its future prospects (Healy & Palepu 2003). On 2 December 2001, Enron filed for Chapter 11 bankruptcy: the biggest in the US history, at the same time the stock price fell to US 0.1 losing investors something like US 11 billion dollar (Oliver & Goodwin 2010, p. 143).
4.1.3 To the accountants and accounting firms
The creative accounting practices that trigger the financial scandals have direct influential impacts over the relevant accountants and the accounting firms. Here we continue the discussion of the Enron’s case. For years, Enron’s financial statement had been audited by Arthur Andersen, a highly regarded accounting firm. As Enron’s auditor, Andersen issued annual report attesting to the validity of Enron’s financial statements; it was supposed to function as an unbiased, incorruptible observer and reporters. On June 15, 2002, jurors convicted the accounting firm Arthur Andersen for obstructing justice by destroying Enron documents while on notice of a federal investigation. The company was sentenced to a maximum of $500,000 and five years’ probation. The once a world class firm with 28,000 employees in the US alone has since been whittled down to a 200 people company running a training center (Monk & Wagner 2009). The Enron scandal has not only changed the perception of accountants in the eyes of the public but will also change the field of accounting as we know it. The US government, the Securities and Exchange Commission (SEC) and other regulatory agencies had since then discussed how to make the accounting profession more reliable and to increase the respect of accounting professionals in the eyes of the public (Alba, Bathija & Thornton 2005). Therefore we can see that the accountants and accounting firms involved in the scandals could also be affected greatly though they should share the responsibility of the events. Similar cases could also be found during the current accounting sincerity crisis happening in China, in which accountants or even their accounting firms are affected by the series of scandals. This is also in accordance with our finding that the majority of the accounting students agree with the saying that “the accountants and accounting firms is one of the most affected parties in the currently sincerity crisis” with more than 90% of the surveyed students either strongly agree or somewhat agree with this saying.
Chart 2 Summary of answers to question no. 21
4.1.4 To the society
There are several major impacts that the accounting sincerity crisis could have on the society: firstly, it caused large scale unemployment which has influential impacts to the stability of the society and also the life of those who lose their job or saving during the unemployment events are seriously affected; secondly, there could be a loss of economic confidence in the country if there should be such a sincerity crisis in the accounting industry. When the series of accounting scandals happened, US-listed Chinese companies and their investors are in panic mode. Thanks to accounting fraud, auditors quitting, short attacks and scandals like Longtop and Sino-Forest, investor confidence has been all but destroyed in several months in the last year And A new CCG Investor Relations survey of investors in US-listed Chinese companies finds that only 2 percent declare themselves ‘very satisfied’ with the disclosure and governance practices of the companies in their portfolios (insideinvestorrelations.com 2011). Therefore, with the loss of global investor confidence on the Chinese large listed MNCs (multinational companies), it will not only bring immediate fall on these companies’ stock price but also long term effect will be created and it is immeasurable in term of influential impacts on the Chinese economy which using an investment and export driven mode has great reliance on the foreign investments.
4.1.5 To the employees
Three major kinds of impacts and loss could be identified to the employees during the ongoing accounting sincerity crisis: financial loss, time loss and psychological impacts. The first kind of impacts is the financial loss which is quite understandable as it takes the form of loss of compensations, loss and sale bonus (because of the downgrade of the companies’ performance) and loss of equity value (for example many employees take the companies’ equity scheme) and even loss of their salary (if the company will go through bankruptcy which is usual and frequent during such crisis); the second type of impact is the loss of time. In case of large scale unemployment, employees will lose their job and it takes for the employment to take effect and time loss in between could be very bad to the employees and also because not all the employees will be so lucky to get a job in the same position and same industry, it takes time for them to learn the new product and market knowledge as well as the new skills and techniques to handle their new job tasks. The third type of impact on the employees is the psychological impact on the employees which could have long term impacts and it takes long term effort to eliminate such impacts. In our survey, when asked “As an employee, will you feel shame when your company is found out to be committing to some accounting scandals?”, more than 70 per cent of the surveyed students choose either “Strongly agree” or “Somewhat agree”, suggesting that employees could be affected not only financially but also psychologically.
Chart 3 Summary of answers to question no. 22
4.1.6 To the creditors
The term “creditor” refers only to a person who both (1) regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement (creditreportproblems.com 2011). The group of creditors is another use that will check the company’s accounting and financial report in a certain period of time until their credit sale or loans are paid back. Because of the existence of the creative accounting information and fabricated financial reports, the creditors may wrongly evaluate the company short term and long term profitability and most importantly the short term and long liquidity ability to fulfill the coming liabilities. As a result of the creating accounting practices, the creditors could be considered as those who suffered the greatest immediate financial loss compared to other stakeholder groups because in many cases, the default of the liabilities possibility will increase especially in case of the companies go through bankruptcy or even the companies survive the scandals, they may encounter financing difficulties because their credit rating could have been downgraded in the crisis and a certain period of time after the disclosure of the creative accounting practices to the public.
4.1.7 To the customers
There are three major kind of suffering that we may think of from the perspective of the customers though may be considered as least affected by these accounting scandals because they do not have direct connection with the financial activities of the company and the financial activities could be to some extent separated from the production activities which have close relationship with the customers who buy the products. Firstly, the customers could suffer psychological loss because they are cheated that these companies are financially healthy and their brands trustworthy. Is this point, the customers are cheated to buy the products by giving high brand value to the companies which could already been falling out of the business circle. Secondly, because many companies even in large scale could not survive these financial scandals, to the customers who have already brought their products, they will lose the after sale service and warranty services if the companies failed to sell the business to the new buyers who are willing to shoulder the after sale job left by the companies. The third kind of impact on the customers is that they may thereafter lose confidence on the other brands because they might believe that creative accounting is some common in the industries.
4.1.8 To the normal Chinese companies
As mentioned above, triggered by the tightening enforcement of rules allowing foreign ownership of Chinese companies, closing a loophole called the “variable interest entity” that allowed many Internet companies be listed in the US, the share price of many Chinese listed firms had dropped largely in the US stock market. For example, after the announcement of the Chinese government’s decision, September had become a horrible month for Baidu, the first real collapse in the stock’s six-year history. Baidu, which went public at $27, before the 10-for-1 stock split in 2010, surged to $165.96 in late July but since that record high, Baidu had lost a third of its value (investorplace.com 2011). While not powerful evident have been found to confirm that Baidu is among some Chinese companies in using creating accounting and fabricating accounting information, and indeed Baidu has been a well known and competitive player as the industrial leader in the domestic search engine industry in China with very good business performance as well as health financial records, the share price of Baidu like many other Chinese firms such as Sina.com and Tudou.com had all suffered significant loss due to the Accounting Sincerity Crisis though they are contributing to such scandals.
4.2 Reasoning the accounting sincerity crisis through a survey
4.2.1 A weak corporate governance system
As mentioned above, past studies have found out the association between the accounting discretionary and poor corporate governance, suggesting that weak corporate governance including poor audit quality encourages the managerial opportunisms (Bartov et al. 2000), take the independent audit as an example, as we know an audit generates a report considered to represent a high assurance of truth, audits performed by an outside independent auditor have the highest assurance because of the degree of assurance is proportional to the independence of the auditor and in contrast internal audit frequently conduct “internal use only” audit which are of lower assurance though it provides key support to the executive governance (Cannon 2011), but as a matter of fact in China the independent audit is still a new thing. And there some features of the market such as the lack of audit independence, the shortage of well‐qualified auditors, an environment of extensive corruption, and the existence of many misconceptions about the audit (Xiao, Zhang & Xie 2000), therefore, it will takes time for the building up of a well functioning auditing system as well as a comprehensive corporate governance system.
4.2.2 Coexistence of both accounting and auditing firms
In most western countries, accounting firms and auditing firms are alike and their associated professional bodies are independent, private, and self-governed organizations not affiliated with the state. The situation in China is quite different. Accounting firms and auditing firms are treated separately. This is evident by the parallel coexistence of the CICPA and the Chinese Association of Certified Public Auditors (CACPA) established in 1991. The parallel coexistence of both accounting and auditing firms has led to many problems in the Chinese public accounting profession such as abnormal competition and duplicated audits (Li & Lin, 1991). The parallel coexistence of both accounting and auditing firms will also contribute to the ineffectiveness of the accounting practices which will be further elaborated in the next paragraph.
4.2.3 Lack of auditing professional
With regard to personnel issues, it is problematic that Chinese accounting students are not exposed to international accounting standards. In addition, as we can see from the complaints by the large accounting firms such as Deloitt and BDO regarding that the problem of staffing issues persists:”If we could have even more people, and all the firms are saying this, you would be able to see even more growth (Schulz, Coulaud, Debilliers & Amidi 2007). Therefore, unlike the U.S., we can see that the accounting profession is not well developed in China – there is both a shortage of professionally qualified auditors and a culture of investor protection that is not institutionalized (Pierce, 2006; Ryan, 2008; McMahon and Rapoport, 2011). Therefore we can see that the lack of auditing professionals could have contributed to the current accounting sincerity crisis because of the lack of professional accounting job provided by auditing professionals.
4.2.4 Lack of strong understanding of the importance of ethics in practices
Chart 4 Summary of answers to question no. 22
According to Ferdinand A. Gul, Andy Y. NG and Marian Yew Jen Wu Tong (2003), China is undergoing a transitional period during which moral standards are not well established and there may appear a period of moral vacuum like that being experienced in the Chinese accounting profession, and the authors further claimed that CPA certificate holders do not have strong understanding of ethical and unethical behavior in their practices. This is in accordance with our finding that among the accounting students, business ethics and various ethical standards are not strongly upheld and believed with firmness. First of all, though more than 80% of the surveyed students agree they have received comprehensive teaching of the business ethics in the classroom, 38% of them is pessimistic about the usage of the ethics in the working environment by saying no to the question that “Do you think that the ethical standards taught are useful in the practical business?”. This indicate the fact that there is an obvious separation between the teaching of the business ethics in the classrooms and the actual application in workplace in China even in the accounting industry in which business ethics is said to be of the greatest and significant importance.
Chart 5 Summary of answers to question no. 24
In another independent question, “Will you commit or directly contribute to the creation of false accounting information in your future career (suppose your future job is accounting related)?”, in 47 out of the total 100 effective answer, choice “B. No sure, it depends” is chosen by the students, this is really surprising as nearly a half of them do not exhibit firmness in insisting the high ethical standards even before they start their career.
4.2.5 Weak regulations & excess political interference
Because the Chinese economy is still in the transitional period, not only the economy is on its way heading to a more open and closed to west market economy but also the legal system and original individual informal credit system is being changed, since the new legal credit system is not well established, the penalty of the noncompliance of the principle of sincerity is reflected in disperse in different legal regulations such as “General Principles of the Civil Law of the People’s Republic of China”, “Contract Law of the Peoples Republic of China”, “Accounting Law of the Peoples Republic of China”, “Anti-Unfair Competition Law of the People’s Republic of China” and “Regulations on Financial Accounting Reports of Enterprises” and so on. But the related treaties are commonly believed to be in-comprehensive, small in numbers, containing too much room for flexibility and also there are too few treaties stating the principle of sincerity. For example, there is a common lack of effective and sufficient penalty against the higher management in the list companies who provide false and creative accounting information as well as penalties against those involved accountants and accounting firms.
Compared to the weak regulation from the government, it seems that the government has another weak point related to the forming of the ongoing accounting sincerity crisis: the excess political interference in the private sector. As mentioned above, China is a socialist country whose economy is characterized by public ownership. The budget system bears some unique features that have a significant impact on budgetary accounting. And such systems are extended largely to the state owned firms (Jorge 2008). In addition studies also find out that one of the major reasons behind the accounting scandal is the close relationship between the management of the company and the local government which continues after the listing of the company as a public through a privatization process in the statement own firms reform, and because the financial performance of the large company had great impact over the performance of the local government, hence the local government’s firmed support in term of providing loans actually contribute to the accounting scandal and the viability of the making the creative accounting practices. Such findings are in accordance with our research results.
Chart 6 Summary of answers to question no. 15
While asked the question that Do you agree with the point of view that “during the privatization of the state owned enterprises, the accounting report are creative in most companies?” more than a half of the surveyed students chose “not sure or disagree”, but while asked Do you agree with the point of view that “political interference in the privatized state owned companies will tend to lead to creative accounting practices?”, surprisingly 53 out of the 100 surveyed students either chose “Strongly agree (30)” or chose “Somewhat agree (23)”, this indicates that thought the current accounting students do not know exactly whether there had been widely accepted creative accounting practices during the privatization of the state owned enterprises which happened majorly in the 1990s and the beginning of the first decade of new century, but as the future accountants, they do sense the pressure from the excess political interference if they are going to work in a state owned company or used to be a state owned company.
4.2.6 Poor information disclosure and information access
Only until 2006, through the revision of the Company Law and Securities Law in 2006, the position of the shareholders is improved significantly, shareholders’ rights had been strengthened to the extent that the scope of information disclosure has been enlarged: companies are required to disclose financial reports and accounting books to shareholders, and in addition not only mandatory information but also all other information that may have impacts on shareholder’ decisions need to be disclosed on a timely basis (Schulz, Coulaud, Debilliers & Amidi 2007). Though the regulation has been changed to a more favorable position to the shareholders, still it takes time to change the China-specific shareholder structure marked by a poor quality of shareholder rights which has its root reason in the China’s recent history due to the implementation of the Marxism in the political life of the country.
In term of information access, take the Sino-Forest Corporation as an example which had been said to be overstating the extent of its timber holdings and committing other instances of fraud, though Sino-Forest released an interim report which it said disproved the “substance of the allegations” made by Muddy Waters, a US research firm that bets against companies by short selling their shares (ft.com 2011), the company’s own legal and accounting advisers raised concerns about their access to information indicating that there had been some difficulties for the accounting information access which created an information asymmetry problem and this increase the viability of creative accounting. And the link between information asymmetry and the creative accounting has already been rationalized in the literature review above by concluding that incentive pay plans of the management linked to accounting performance offer more than just incentives for efficient operating and financial decision which stimulates the earning manipulation using creative accounting because the managers as insiders know the true accounting data and information of the company which the outsiders such as the shareholders have limited access to.
4.2.7 Lack of awareness of the protection of investors
In China, in a long history, the country has been reluctant in recognizing the privatization in the market economy; therefore investors’ right is not well protected in a long period of time. For example, only until recently, China’s securities regulator announced that the country has established an investor protection bureau, in a move to better protect the rights and interests of Chinese investors in the capital market (cs.com.cn 2012), and because of the lack of awareness of the protection of the investors, interests of the owners are usually put below the management’s personal interest resulting in many of the creative accounting practices.
4.3 Critical analysis and discussion
After doing the review of the literatures and theories as well as analyzing the various reasons behind the ongoing accounting sincerity crisis, and also with the original data obtained from doing the survey, the most important finding in this research is not that we find out there is lack of independent audit or lack of relevant regulations or even lack of experienced accounting professionals in China but we find out that the lack of awareness of the business ethics in the accounting industry which is really astonishing with only 43 surveyed accounting students select an absolute “no possible” while asked “Will you commit or directly contribute to the creation of false accounting information in your future career (suppose your future job is accounting related)?”, the rest of the answers are “B. No sure, it depends”, “C. Possible” and “D. Very likely”. While the structure of the corporate governance, government regulation and human talent pool would not be long term issues in my understanding because the developed economies have provided sufficient example in solving process, the only problem seems to be the matter of time. But the lack of self demand for the high business ethics in the accounting industry is the one that worries us most. Below we will try to provide some conclusions based on our finding to provide solutions to address some of these key issues and problems.
5. Chapter five: Summary conclusion
To conclude the above analysis, we refer back to the two major objectives of this report that we have mentioned in the beginning: This first target is to examine the impact of the ongoing accounting sincerity crisis in China; and another is to rationalize the current accounting sincerity crisis in China. In term of the impacts of the ongoing accounting sincerity crisis, we have concluded that the key stakeholders have all been affected in term of long term or immediate impacts. And among these key stakeholders, the accountants (accounting firms) and the management are considered as the most affected parties in term of immediate impacts while the shareholders, creditors and other business partners will suffer long term impacts with the society and the local community suffering an even long term but could be more influential impacts and could be immeasurable. And in term of rationalization of the current accounting sincerity crisis in China, various reasons have been identified such as “A weak corporate governance system”, “Weak regulations & excess political interference” and “Lack of awareness of the protection of investors”. While some of these deficiencies could be further improved by the development of the economy in our understanding, the lack of self demand for the high business ethics in the accounting industry is the one that worries us most as just mentioned with a certain proportion of the surveyed accounting students exhibiting weak persistence on the business ethics. And the sincerity crisis spreading among the accounting students will really have long term impact in the society as well as the accounting industry in China. With this conclusion, we have concluded that a change in the culture will be of critical importance, and this is why we have provided recommendations on the improvement of the business and corporate culture in term of the focus on the business ethics.
5.2 Recommending solutions to solve the accounting sincerity crisis
5.2.1 Need for a culture change
One most needed change that is desired with increasing importance amid the recent events regarding the creating accounting and financial scandals is a need for a major change in the business culture and attitudes of the higher management of the companies, especially those large listed companies who have influential impacts to the society and the economy of the country and lead the accounting industry. It will be one of the fundamental and basic solutions to the current ongoing accounting sincerity crisis which is to try and create a business culture of transparency, integrity and accountability. And this change need to be initiated and implemented from the top down in the organizations because in many cases that we had reviewed and discussed, many employees do not know about what happened to the company and some accountants are to some degree forced to contribute to the creative accounting and false financial reports because their salary is paid by the company. Company culture could both be formal and informal. Explicit statements of values, beliefs and customs usually come from upper management. Memos, written codes of conduct, handbooks, manuals, forms, and ceremonies are all formal expressions of an organization’s culture. Companies could post these statements on company website and publication of these company ethical policies could be helpful. And also corporate culture is often expressed informally. For example it could be communicated via both direct and indirect channels by management of the company. In some companies, this target is achieved by programs, legends and other rituals (Ferrell & Fraedrich 2011, p. 184). And training will underlie any attempt at effecting a change in attitudes, because the period of training will give the management accountants some time to rethink the compliance of their accounting practice to the business ethics which they should be adhering to under all circumstances. But if the accountants are busy with doing the work required by the management, and the managers are doing their jobs required to achieve the set business goals, there could chance that they will neglect the alignment of their work to the highest business ethics which they should perform.
5.2.2 Integrate highest ethical standards into the corporate culture and procedures
According to Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson (2011, p. 367), there are several actions that the management of the companies could take to develop an ethical organizational culture: (a) establishing and communicating specific goals to describe the firm’s ethical standards; (b) continuously revising and updating the code of conduct based on the inputs from people throughout the firm and from other stakeholders; (c) also the company could develop methods and monitoring tools and mechanisms to ensure that there are procedures to help achieve the company’s ethical standards. Procedures in many cases help enhance the ethical corporate culture, and they ensure that people’s interests fit in the need of the ethical business and could be more powerful than the corporate culture. For example, the company can redesign the managers and executives’ pay in such a manner that ethical performance would contribute to the evaluation in the performance based pay. This will to some extent align the management’s personal interests with the company’s long term interests.
5.2.3 A long term orientation: Integrate the business ethics as an important course in the on-the-job training
On-the-job training focuses on the acquisition of skills and value within the work environment generally under normal working conditions. The on-the-job training is considered to be helpful to shape the corporate culture and educate the employee in the right direction according to the strategic needs of the business. Making the business ethics an important course of the training in the work place will have three major benefits related to the resolution of the current sincerity crisis in the accounting industry. First of all, as mentioned above, the majority of the accounting major students agree that they have received comprehensive teaching of the business ethics though a certain proportion of them do not think such high ethical standards are strictly adhered in the working environment, therefore it would be necessary to continue the teaching through the form of on-the-job training; secondly, this training in the working environment actually transmit the company’s information that adherence to the high ethical standard is clearly a request from the company management; thirdly, training is an important tool to change people’s mind and wrong beliefs and it will provide support to the cultural change which has been mentioned above.
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Appendix 1.0 Questionnaire on the university accounting students in China
Thank you for participating our questionnaire, please take note only students in the major of accounting are invited to take this survey. Your participation and information collection in this survey will be strictly used for research purpose. This survey is aiming at identifying the attitude and acknowledgement of accounting students to the current “Accounting Sincerity Crisis” that they would expect to face in their future professional careers and what are their plans to overcome them. Your kindly participation is much appreciated.
Please answer the following questions and refer to the research persons if you need any assistance.
1 What is your gender?
A. Male B. Female
2 How old are you?
A. 20 or less B. 21 to 25
C. 26 to 30 D. 31 and above
3 Do you plan to work as an accountant or related positions?
A. Very unlikely
C. Very unlikely
F. Very unlikely
4 How do you think the position of an accountant in influencing the business management decisions making?
A. Not important
B. Little importance
C. Somewhat important
E. Quite important
F. Very important
5 If you are the chief accountant, what qualities would you focus if you are going to employ new accountants?
A. Professional knowledge and skills
B. Honesty and reliable
C. Obedience and order taking
D. Flexibility in coping with various problems
6 How would you ranking these four areas by their importance in influencing your employment decisions:
Example: C D A B
7 Which character do you think is the most needed by a chief accountant?
A. Trust by the leaders and managers
B. Improvement of the external environment
C. Personal professional capabilities
D. Business ethics
E. Support from the employees and subordinates
8 How you think of the sincerity and honesty training in the accounting industry?
A. Not sure
B. It is of no use
C. Somewhat useful
E. Very useful and constructive
9 How do you describe an accountant with relatively high level of business ethics and professional integrity?
A. Obey the legal and policy regulations
B. Do the accounting job in a professional manner
C. Think of the company benefits
D. Obey the order of the leaders
10 Have you received comprehensive teaching of the business ethics in the classroom?
C No sure
11 Do you think that the ethical standards taught are useful in the practical business?
C No sure
12 How true do you think most companies’ financial report is (no creative accounting)?
A. No creative accounting
B. Basically no creative accounting
C. Creative accounting are common
D. Can not say
13 What reasons do you think are the major contributors to the accounting and financial report fabrications?
A. Ethics problems of the accountants
B. Problems of the corporate governance
C. Poor legal and policy regulation and monitoring
D. Fierce competitions
E. Financial difficulties
14 Do you agree with the point of view that “creating and false accounting information is inevitable” ?
A. Strongly agree
B. Somewhat agree
C. Not sure
D. Somewhat disagree
E. Strongly disagree
15 Do you agree with the point of view that “during the privatization of the state owned enterprises, the accounting report are creative in most companies”?
A. Strongly agree
B. Somewhat agree
C. Not sure
D. Somewhat disagree
E. Strongly disagree
16 Do you agree with the point of view that “political interference in the privatized state owned companies will tend to lead to creative accounting practices”?
A. Strongly agree
B. Somewhat agree
C. Not sure
D. Somewhat disagree
E. Strongly disagree
17 In your opinion, which is the major promoter of fabrication of accounting reports in the list companies?
A. The board of directors
B. Companies’ accountants
C. Poor regulation and rules
D. The senior management
18 Which one do you think is the key solution to the “Accounting Sincerity Crisis”?
A. Penalizing those who create the accounting fabrications
B. Speed up the relative legal and regulation building
C. Improve the business environment
D. Enhance the sincerity and honesty (business ethics) training
19 Do you agree with the point of view that “creating and false accounting information is intolerable”?
A. Strongly agree
B. Somewhat agree
C. Not sure
D. Somewhat disagree
E. Strongly disagree
20 How reliable do you think of the accounting and financial report of the listed companies in China?
A. Strongly reliable
B. Somewhat reliable
C. Not sure
D. Not very reliable
E. Not reliable at all
21 Do you agree with the saying that “the accountants and accounting firms” is one of the most affected parties in the currently sincerity crisis”?
A Strongly agree
B Somewhat agree
C Not sure
D Somewhat disagree
E. Strongly disagree
22 As an employee, will you feel shame when your company is found out to be committing to some accounting scandals?
A Strongly agree
B Somewhat agree
C Not sure
D Somewhat disagree
E. Strongly disagree
23 How do you think of the responsibility that the accountants should shoulder in the accounting and financial scandals?
A. Major responsibility
B. Share the responsibility with other senior management
C. No responsibility if they are required to do so by the management
24 Will you commit or directly contribute to the creation of false accounting information in your future career (suppose your future job is accounting related)?
A. Not possible
B. No sure, it depends
D. Very likely
25 Will you blow the whistle if there should be any creation of false accounting information in your company?
A. Not possible
B. No sure, it depends
D. Very likely
26 If you are the HR head of a company, would you consider hiring a very capable manager who had contributed to the creation of false accounting information?
A. Not possible
B. No sure, it depends
D. Very likely