What are the reasons that accounting fraud occurs?

Accounting fraud mainly arises from the motive of improving a company's financial performance.

＊Ease of access to capital markets

When a company borrows funds, if its revenue and net profit are high, it is evaluated as a sound company, so the interest rate on the borrowings is lowered.

＊Management of the stock price

In the stock market, when the semiannual or quarterly financial statements are disclosed, a high net profit causes the stock price to rise.

As a result, companies are prone to the temptation to manipulate their accounting books to inflate net profit.

＊Laxity of supervision and punishment

Weak supervision and punishment of accounting fraud by financial supervisory authorities is also a cause.

Under the current Act on External Audit of Stock Companies, companies above a certain size must undergo an external audit by a certified public accountant, and the audit reports are supervised by the Securities and Futures Commission.

However, even when supervision revealed points of concern, disciplinary measures against auditors have centered on light discipline, and strong measures such as revocation of establishment authorization or revocation of registration have rarely been used.

In other words, accounting fraud occurs when a company's motive to inflate financial performance in order to facilitate fundraising and stock price management combines with inadequate supervision and punishment.

For details, we recommend confirming them through a consultation with an attorney specializing in accounting.