Related parties and related transactions, especially a series of transactions and events with undisclosed related parties, have become the focus of a series of financial fraud cases. With this as the center, a variety of fraudulent methods have emerged. Therefore, in the process of financial due diligence and financial audit of the investee or acquirer, enterprises should focus on strengthening the financial verification of undisclosed related parties, expanding The scope of its verification, full use of various verification methods and means, in order to reduce the risk of investment mergers and acquisitions. When investigators identify the relationship between related parties, they can check through the following three methods to determine whether there are undisclosed related parties.
Based on the list of related parties provided by the management as the starting point for verification, the identification and judgment of the relationship between related parties is realized by expanding the scope of verification.
Financial due diligence personnel need to investigate whether the persons and enterprises on the related party list have related relationships or have conducted related transactions with the issuer's customers and suppliers, and should pay particular attention to whether they have part-time personnel, mutual investment, co-investment and other interests Association, and then determine whether there are undisclosed related parties and related relationships.
In a considerable number of actual cases, certified public accountants have not paid enough attention to this work, especially the verification work of the above-mentioned natural persons is only a formality. After obtaining the list of related parties, declarations or commitments, industrial and commercial registration materials of related parties and other relevant materials provided by the issuer, the verification is only carried out through telephone interviews, letter confirmation, etc. The work of other external evidence such as three-party certification materials.
For example, visit important related parties on the spot and talk with senior managers to obtain declarations and commitments on important interview content; obtain industrial and commercial registration materials through some government relations or query the registration information, equity structure, key management personnel and other information of related companies through the Internet.
In the process of verifying important customers and suppliers, the principle of materiality and the principle of risk orientation should be emphasized. For verification samples, customers and suppliers that meet the level of importance can be selected with reference to the transaction amount and the proportion of transactions.
When obtaining the background information of important customers and suppliers, such as information on shareholders, key management personnel, business scale and office address, etc., it should be obtained through correspondence, phone calls or emails, on-site visits, data verification, and access to important customers and suppliers. Third-party certification materials and other external evidence, and inquiring about the grass-roots employees directly involved in the transaction, etc., to further determine whether there is a possibility of undisclosed related parties.
Such undisclosed related parties usually have the following characteristics, such as the counterparty has an associated relationship with the company or its main controller, key management personnel, etc.; the registered address or office address of the counterparty is in the same place or close to the company or its group members; The name structure of the main controller, key management personnel, or employees in key links such as purchase and sales of the counterparty is similar to that of the company's management; the transactions between the counterparty and the company are not related to their business scope; the counterparty has been in arrears with the company for a long time, but the company continues to Transaction; the counterparty is an important customer or an important supplier newly added in the current year.
The transactions conducted by this part of the verification objects generally have the following characteristics: For example, the amount involved in the transaction or event is usually large and the frequency of occurrence is low, or there is a large transaction or capital exchange with a natural person; the transaction is not settled by bank transfer, but is Therefore, financial due diligence investigators should not only focus on the large-value transactions settled by the company through banks, but should also pay attention to whether there are significant transactions with third-party companies that are not disclosed as related parties. mutual matters.
For this part of the verification object, financial due diligence personnel are required to have sufficient professional sensitivity, through auditing methods such as reviewing the company's sub-ledgers, minutes of shareholders' meetings and board of directors, reviewing large or abnormal transactions, and paying attention to transactions confirmed near the end of the reporting period. Identify potential related parties, and take further steps by talking with the issuer's senior management, interviewing the person who handles specific transactions, reviewing industrial and commercial registration information, reviewing the issuer's important meeting minutes and important contracts, on-site visits and Internet inquiries, etc. Measures to investigate the background information of the counterparty, such as shareholders, key management personnel, business scale, office address, etc., and family members who have close ties with the issuer's actual controllers, directors, supervisors, senior management personnel, and core technical personnel that have been obtained. Check and verify each other's lists to verify whether there are undisclosed related parties.
With the increasing requirements of the government, investors and the public for the quality of financial information, regulatory agencies and intermediaries have strengthened the financial review of enterprises, and the means of financial fraud have also diversified and complicated.
In some cases, there is even a "related party" fraud that has no legal relationship in form. This kind of related relationship has become more insidious, and it is difficult to judge it only through the definition of related party.
Therefore, starting from major or abnormal transactions, it is an ability that a qualified financial due diligence officer and auditor should have to be able to re-judgment "substance over form" for the unconventional behavior in transactions and events. Both internal and external evidence can be faked, and only common sense will not deceive people.