Financial Fraud and Audit Failure in Listed Companies: A Case Study of Qixin Co., Ltd.

Abstract

Against the backdrop of the full advancement of the registration-based system in China’s capital market and regulators’ “zero-tolerance” stance on financial fraud, systematic financial fraud of listed companies coupled with concomitant audit failures still occur frequently, severely disrupting market order and eroding investor confidence. As a listed enterprise in the architectural decoration industry, Qixin Co., Ltd. engaged in continuous financial fraud for 8 years, with cumulative false profit inflation of 2.63 billion yuan during 2012–2019, alongside major violations including embezzlement of IPO funds and irregular issuance of 3.4 billion yuan in commercial acceptance bills. The fraud was exposed in 2021 due to a capital chain rupture, and Dahua Certified Public Accountants, the auditor for eight consecutive years, issued unqualified audit opinions despite failing to perform basic verification duties, resulting in a prominent audit failure. This paper adopts a case study method to systematically analyze the specific practices, core means, underlying motives, business ethics anomie, and multi-dimensional causes of audit failure in Qixin’s financial fraud. The research finds that Qixin’s fraud is a joint result of actual controllers’ interest drive, corporate governance defects, industry supervision loopholes, and audit supervision failure; its fraudulent acts seriously violate the good faith principle, infringe on stakeholders’ rights and interests, and damage industry ecology and market fairness. The lack of risk assessment, inadequate procedure implementation, and loss of independence of audit institutions are the core causes of audit failure. This study enriches case research on financial fraud and audit failure, provides a reference framework for similar case analyses, and has practical significance for listed companies to improve governance and ethical construction, audit institutions to standardize practice, and regulators to optimize regulatory mechanisms.