Financial statements should provide information about company's financial performance during a period. It is useful to existing and potential investors, lenders and other creditors in making decisions to provide resources to the company. Financial statements fraud leads to serious accounting information distortions and it greatly damages the investors' interest. This paper studies financial statements fraudulent behaviors in the Chinese context. The purpose of this study is to find out whether fraudulent financial reporting prevalent in China. The study also explores factors affecting financial sttaments fraud, methods to detect financial statements fraud and how to prevent financial statement fraud.
The empirical part of the study is conducted by doing a qualitative research. The qualitative research was executed as interviewees. The data are collected by conducting interviews with 6 accounting professionals chosen both in academic and practical field in China.
The research results show that financial statements fraud is prevalent in China due to the weak legal enforcement, weak investor pretection, lack of professional ethics of fraudulent companies and accounting firms in China
