Despite the rapidly changing forms of financial reporting fraudulent behaviour and misconduct, we see that the majority of cases share classic early warning signs, which still go unnoticed.

KPMG assisted a global leading consumer products manufacturer on an internal investigation at its China subsidiary. It was alleged that various employees, including the China CEO, were involved in a sophisticated financial reporting fraud scheme involving overstatement of revenue and under-recording of sales rebates. The China subsidiary’s business previously had reported steady growth, but was increasingly unable to meet its KPIs set by HQ. This resulted in a high pressure environment, with a high turnover of key management staff.

KPMG assisted a Hong Kong listed retailer with an internal investigation into concerns of financial statement fraud, including undisclosed related party transactions and advance payments being made to suppliers without reasonable business rationale. 

The concerns were initially raised by the external auditors and subsequently reported to the regulators. It was suspected that the scheme had been ongoing for many years, and neither the governance body (e.g. the Board of Directors) nor the external auditor could identify specific evidence of the suspected financial statement fraud.