Why does accounting fraud occur?

Accounting fraud mainly occurs from the motivation to enhance corporate financial performance.

＊Ease of Access to Capital Markets

When a company borrows funds, if sales and net profit are high, it is evaluated as a blue-chip company, and the interest rate on borrowings becomes lower.

＊Stock Price Management

In the stock market, when half-year and quarterly financial statements are disclosed, if net profit is high, the stock price rises.

Accordingly, companies are easily tempted to manipulate accounting books to inflate net profit.

＊Lax Supervision and Punishment

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

Under the current "Act on External Audit of Stock Companies," companies above a certain size must receive external audits by certified public accountants, and audit reports are reviewed by the Securities and Futures Commission.

However, even if there are issues pointed out as a result of actual review, disciplinary action against auditors has been mainly minor disciplinary action, and strong measures such as cancellation of establishment authorization or registration cancellation have rarely been used.

That is, the motivation of companies to inflate financial performance to facilitate fund procurement and stock price management combined with the inadequacy of supervision and punishment leads to accounting fraud.

For details, please consult an accounting specialist attorney.