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Lantian Stock: The 600-Word's Spell on the Transformed State-Owned Enterprise in China  
 
Product Ref: 09/418C Company: Lantian Stock

Product Type: Case Industry: Agricultural Industry

Related Product(s): Teaching Note
Lantian Stock was China's first state-owned agricultural enterprise to have gone through the corporatisation reform in mid 90's. Since its listing in 1996, Lantian Stock had recorded a dazzling performance in its financial statements. However, in October 2001, 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. Consequently, all banks in China refused to extend loans to the company. Meanwhile, Liu faced defamation prosecution brought up by the company who initially denied the allegation. The defamation charge was dropped eventually as the Chinese regulators began to unveil the hidden truth that Lantian Stock had indeed involved in misreporting and perpetrating accounting fraud. Chinese media also dug up the controversial background, mythical tales and the previous fraud record of Lantian Stock. Since Liu could uncover the misstatement based on some basic financial ratio analysis, she remained sceptical about why such wrongdoings had not been discovered by related parties earlier. Alternately, the auditing or CPA firm of Lantian Stock commented that the fraud was undetectable as it had gone far beyond what CPAs could discover from its required procedure, and blamed it on the Chinese environment that was conducive to accounting fraud. Was the circumstance of Lantian Stock scandal as what the CPA had claimed?
Functional Area : Accounting & Control
Social Enterprises & Ethics

Issues: To discuss the issues of corporate governance and professionalism of CPAs in the context of China, by looking into the usefulness of financial ratio analysis in fraud detection, possible causes of the accounting scandal, measures for effective governance, whistleblowing protection in China, and the rebuilding possibility of a fraud-implicated company.
Length: 22 pages Country: China (People's Rep. of)

Pub. Year: 2009 Level of Difficulty: 3
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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