VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS

FINANCIAL STATEMENT FRAUDS AT LISTED REAL ESTATE
COMPANIES ON VIETNAM’S STOCK MARKET
The Nu Tran*, Hai Trang Duong Thi, Phuong Anh Vu Thi, Kim Chi Nguyen Thi
University of Economics and Business - VNU
ABSTRACT
In the recent context, Vietnam gradually integrates into the global economy.
Also, enterprises face new challenges with more opportunities and difficulties.
Businesses are competing fiercely with each other to expand their market share,
increase sales. Therefore, they tend to cheat more for the personal gain of
businesses and managers and somehow have effects on community benefits.
This research examines the risks of Financial Statement Fraud, based on the
assessment of the adjustments of Financial Statements before and after being
audited of Listed Real Estate Companies on Vietnam’s Stock Market, then
bring out some petitions and solutions to reduce Financial Statement Frauds.
Keywords: Financial Statement Fraud, Real Estate, Listed Company, The risks
of Financial Statement Fraud.
1. INTRODUCTION
Financial fraud caused losses of approximately USD 3.7 trillion to the world gross
output (ACFE, 2010; ACFE, 2012 and ACFE, 2014) and led the stock market and
economic faced serious consequences of financial statement fraud. The importance
of financial transparency has been alarmed for many years. By the end of March
25, 2015, 330 enterprises published their full 2014 audited financial statements, of
which 196 companies had to restate their financial statement, accounting for 59%.1
Up to April 16, the auditor of financial report figured out that there were material
differences in profit announcement of 540 out of 709 financial statements in 2017.2
Similarity, a considerable number of cases related to financial statement frauds
(especially fraud in profit figure) had been recorded in 2018...3
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2

*Corresponding author.
Email address:
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The possible causes of differences in financial statements of listed companies
before and after auditing may be due to errors, and may also result fromfraudulent
acts of financial statements. Information errors in the financial statements, whether
accidentally or intentionally, will affect the benefits of shareholders and investors. The
most worrying thing is the belief in the financial statements of listed companies on
Vietnam's stock market, even the audited financial statements also cause suspicions
for shareholders, investors, customers ... Therefore, financial information provided by
the businesses increasingly demanding quality, transparency, honesty and objectivity.
Especially for the real estate industry, the accuracy of the information on the financial
statements is even more important in making the decision of investors.
The fact that has existed for many years is that very few transactions in real estate
market have accurate and clear information, and the false information leading to
damage to customers are even more. The real estate consists of many factors such as:
legal status (documents, papers on ownership, the right to use real estate and papers
related to the creation of real estate...); characteristics, properties, utilities, quality,
limitations of real estate, planning, the status of infrastructure works, technical and
social services related to real estate... However, when making real estate transactions,
these information has not been provided completely to customers. Many investors
also do not have specific and clear provisions on payment methods, installment
payment period, delivery deadlines, compensation obligations of buyers and sellers if
they do not follow the terms of the contract. In addition, many real estate buyers and

sellers also lack legal knowledge and do not know what documents and procedures
are required when making a transaction. Real estate prices are also not grasped,
based on rumors.
Overall, the transparency of Vietnam's real estate market is very low. This market
is "sensitive" to information flows, including unverified information. Many localities
have not done a good job of information on real estate market, are still in a hurry
or have not handled urbanization well. Moreover, there has not been a sufficiently
strong and deterrent measure to those who cause false rumors. These are loopholes
that many investors take advantage of, "inflate" the information to make a profit,
then the damage will be poured into secondary investors and people, affecting the
development of real estate market.
2. LITERATURE REVIEW
Many pieces of research often use financial statistics to forecast financial statements
fraud. For example, Prof. Beneish’s research about building a model to predict
financial statement frauds is considered as typical research in this term. He created
the M-score model to evaluate the risk potential in a single company’s financial
statements. This model had eight variables divided into two groups. The first one
contained the variables to identify frauds: DSRI (Days Sales Receivable Index), AQI
(Asset Quality Index), DEPI (Depreciation Index), and TATA (Total Accrual on Total
Assets). The four remaining indexes were used to reflect fraud causes: GMI (Gross
Margin Index), SGI (Sales Growth Index), SGAI (Sales, General and Administration
Expense Index), and LVGI (Leverage Index). The probability about which auditors,
investors…could identify frauds was 76%. This model had helped Cornell University’s
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VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS

students to identify Enron’s frauds one year before this company bankrupted, while
the auditor could not figure out. Nowadays, Beneish’s method is still applied and

developed globally.
The empirical analysis “Can financial ratios explain the occurrence of fraudulent
financial statements?” has used a sample of 122 fraud and non-fraud companies in
Malaysia from 2003-2010. This study tests eleven financial ratios based on Spathis
(2002) and other studies that examined financial ratios indicative capabilities. This
study also includes the classical Beneish (1991) ratios and control for distress factor
using the Altman Z-Score (1968) model. The results show that all the financial
ratios have significant relationships with FFS except for Gross Profit-to-Assets ratio,
percentage of Inventory-to-Total Assets, Gross Margin Index, and Z-Scores. This
concludes that financial ratios can explain the occurrence of fraudulent financial
statements.
Nia (Iran-2015), in her paper “Financial ratios between fraudulent and non-fraudulent
firms: Evidence from Tehran Stock Exchange”, has used samples from 134 companies
in the stage of 2009-2014, with the hypothesis independent sample t-test exerted,
to compare the financial ratios between fraudulent and non-fraudulent firms. The
results show that there is a significant difference between the means of current
assets to total assets, inventory to total assets, and revenue to total assets ratios. This
also means that the management of fraud firms may be less competitive than the
management of non-fraud firms in using assets to generate revenue.
In Vietnam, the master thesis of Nguyen Tran (2014) has summarized the current
situation in terms of financial statement frauds of listed companies, as well as using
Beneish’s M-score model to identify frauds. According to provided statistics, the
percentage of the fraudulent company was 53,33% (16/30 companies).
Khanh Hoang and Thi Thu Hien Tran’s research (2015) has used the results from
researches by DeAngelo (1986), Friedlan (1994), and Beneish (1999) to identify
the fraudulent financial statements potential of the listed company in the field of
construction. Based on those previous models, two authors have developed two
new models with ratios: SGI (Sales Growth Index), AQI (Asset Quality Index), DEPI
(Depreciation Index), Adjusted Accrual-Basis Accounting Variable, and the accuracy
of acquired results was 63,41% and 68,29% respectively.

3. METHODOLOGY
3.1. Research questions
- What is the theoretical basis used in researching factors impacting to financial
statement fraud?
- The overview of real estate market in Vietnam?
- How does financial statement fraud impact to real estate market?
- How is financial statement adjustment of listed real estate companies from 2013
to 2018?
- What are the recommendations to better control fraudulent financial statements of
Vietnamese listed real estate companies?
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3.2. Approaching method
It is difficult to evaluate financial statement frauds by directly taking survey towards
listed companies and their audit service company. Thus our research team decided
to approach this issue by measuring fraud potential in financial statements before
and after auditing.
3.3. Data collection method
This research examines the risks of Financial Statement Fraud, based on the
assessment of the adjustments of Financial Statements before and after being
audited of Listed Real Estate Companies on Vietnam’s Stock Market, then bring out
some petitions and solutions to reduce Financial Statement Frauds. In terms of space:
This research selects 30 real estate listed companies on Vietnam's stock market. In
terms of time: The data source used in the research is the financial statements of
real estate listed companies on Vietnam's stock market in the period of 2013-2018.
4. RESEARCH RESULTS
4.1. In terms of quantity

Table 1. Difference between items in Financial statements before and after the audit
Item
TOTAL ASSETS

NET REVENUE

REVENUES

YEAR

2013

2014

2015

2016

2017

2018

No difference

8

6

10


7

6

8

Difference increases

4

7

11

10

11

8

Difference decreases

18

17

9

13


13

14

No difference

20

24

24

21

16

19

Difference increases

7

3

2

5

6


4

Difference decreases

3

3

4

4

8

7

No difference

10

10

10

11

5

8


Difference increases

8

7

8

11

7

9

Difference decreases

12

13

12

8

18

13

Unit. Company


The statistical results on the financial statements of 30 companies in 6 years showed
the difference of increase/decrease in items (total assets, net revenue, revenues) of
real estate listed companies on Vietnam stock market. From 2013 to 2018, 67%
-80% of the companies adjusted their total assets after auditing; 20%-47% of the
company adjusted net revenue; 67% -83% of the company adjusted revenues.
4.2. About adjustment scale
Each difference in the adjusted data before and after the audit is different because
it depends on the scale of the company. Therefore, in order to objectively assess
the situation of the difference of financial statements before and after the audit, the
research team evaluated based on the difference between the items.
Difference ratio of Total assets =

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Total assets increase/decrease year t
Total assets before audit year t


VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS

Difference ratio of Net revenue =

Net revenue increase/decrease year t
Net revenue before audit year t

Revenues increase/decrease year t
Revenues before audit year t
The research team divided into two cases: difference ratio INCREASE, difference
ratio DECREASE.
The levels of difference are:

Level 1: Differences in the range of 0% to 3% (≤ 3%)
Level 2: Differences in the range of 3% to 5% (> 3% and ≤ 5%)
Level 3: Differences in the range of 5% to 10% (> 5% and ≤10%)
Level 4: Difference greater than 10%
Difference ratio of Revenues =

Table 2. Different situation of real estate listed companies on Vietnam's stock market at
different rates
Year
Difference
ratio
(%)

2013

2014

2015

2016

2017

2018

2013

TOTAL ASSETS increase
Level 1
Level 2

Level 3
Level 4

3
1
-

6
1
-

10
1

9
1
-

11
-

5
1
1

1
1
1

2

-

3
1
1

6
-

8
-

17
1

5
3

5
1
1

3
2
2
1

7
4


4
2
1

2016

2017

2018

15
2
-

8
1
-

10
2
1
-

11
2
-

13
1


NET REVENUE decrease
3
1

2
1
-

REVENUES increase
Level 1
Level 2
Level 3
Level 4

2015

TOTAL ASSETS decrease

NET REVENUE increase
Level 1
Level 2
Level 3
Level 4

2014

1
2

3

1

3
1

4
1
2
1

6
1

REVENUES decrease
4
2
3

6
1
1
4

7
1
2
3

5
2

5

4
2
2

8
3
2
5

9
1
2
1

Unit. Company

In 6 years, the total assets, net revenue and revenues of the companies had the main
increase/decrease ratio, at 0-3%. Only about 1 to 3 companies adjusted total assets
and net revenue on the financial statements after auditing at rates greater than 3%
but the size of assets and revenue difference is quite large (related to billion). As
in 2013, the difference rate of IDI increased 5.84% of total assets compared to the
total assets before auditing (about 101.9 billion VND); In 2018, DLR decreased by
17.52% of total assets compared to the total assets before auditing (about VND
19.8 billion); FLC's net revenue increased by 13.74% (about VND 505.9 billion) in

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2016; IDI decreased by 12.19% (660.3 billion VND) of net revenue in 2018 ... The
difference in revenues was more volatile at the rates. Especially the Revenues ratio
reduction rate after auditing.
4.3. Possibilities of financial statements fraud
Below, the research team gives a table of assessment of the possibility of financial
statements fraud based on each level of difference rate. The higher the degree of
difference, the more important the difference in each item and the greater the doubt
about the transparency of the author's financial statements.
Table 3. Assess the likelihood of financial statements fraud at each level
Difference ratio

Level 1

Level 2

Level 3

Level 4

Evaluate

Not important

Important

Very
important


Very important

The possibility of fraud risk

Least
possibility

Possibility

High
possibility

Very possibility

The evaluation results show that, in 6 years on the financial statements after auditing:
- Level 1: About 10-37% of companies increase their total assets; 27-57% of
companies reduce total assets; 3-17% of companies increase net revenue; 0-10% of
the company reduces net revenue; 10-23% companies increase revenues; 13-30%
of companies reduce revenues.
- Level 2: There is no company increasing the total assets; 2 companies decreased
Total Assets in 2016 (HQC and LCG) and 2017 (DLR and LCG); no company
increased net revenue; 1 company reduced net revenue in 2013 (LGL); The company
increased its revenues was in 2014 (1 company: TKC) and in 2015 (2 companies:
DRH & VCR); The company reduced its revenues in 2013 (SHN), 2014 (DIG), 2017
(DLR, FLC & IDI) and 2018 (VIC)
- Level 3: Increase Total assets: 2013 (IDI), 2014 (HDG) and 2016 (IDJ); 1 to 2
companies reduce TTS (2014 to 2015); increase net revenue: in 2013 (IJC), 2014
(HQC), 2016 (SHN); reducing net revenue: 2014 (DLR) and 2017 (DLR & HQC);
There are 2 companies increasing revenues in 2015 (DIG & IJC), 2017 (DRH &
DTA) and 2018 (LGL & LHG); companies reduce revenues each year there are 1 to

2 companies.
- Level 4: This level Total assets and net revenue appear each year very little. But the
revenues difference is much higher at this rate (about 3-17% of the company adjusts
revenues per year.
4.4 General evaluation
After analyzing and processing data of 30 real estate listed companies on Vietnam's
stock market from 2013 to 2018, the research team found that the quality of the
financial statements in general still has many differences between the previous
financial information and after auditing in preparing, presenting and announcing
the financial statements as higher revenue recognition (FLC, LHG ...); evaluate the
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VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS

value of assets higher, adjust losses into profits ... And based on the difference
of data in 3 items (Total assets / Capital; Net revenue; Net profit) to assess the
importance of the adjustment thus leads to conclusions about the possibility that
the company may occur fraud in the financial statements. Moreover, the real estate
market is an imperfect market, compared to all other markets such as consumer
markets, commodity markets ... real estate is considered a complex commodity,
if the demand is more than the supply, The State must intervene to stabilize the
market, otherwise real estate fevers, etc will occur. The real estate market must be
under the management of the State and under the control of the Law.
A company that is found to have fraudulent financial statements will suffer serious
consequences such as bankruptcy, company’s reputation will be seriously reduced.
Specifically, the Board of Directors and the people directly involved in preparing the
Financial Statements of the Company must be directly and indirectly responsible for
administrative and criminal matters (including compensation, trial and imprisonment)
for frauds. , even terminating professional activities related to accounting and finance.

In the modern economy, operating economic groups are closely linked in the national
and global financial network. Therefore, the collapse of an economic corporation
can lead to the collapse of the entire national and world financial system. The
consequences of fraudulent financial statements can completely destroy the longterm development achievements of the allegedly fraudulent company, which has set
up and slowed down the development of national and international financial systems.
For investors, the efficiency of using capital is most concerned. When the financial
statements are deliberately fraudulent, the investors' expectation will be too high
or too low in the company, directly affecting the profitability of capital, even losing
capital. Fraudulent financial statements not only cause damage to investors 'assets
but also lose investors' confidence in the capital market and the reliability of financial
information.
Lenders, especially credit institutions such as banks, will be at risk when lending to
businesses that commit financial fraud. In the case of an insolvent enterprise, the
bad debt status in banks, affecting the whole banking system in general, reduces the
national economic growth.
For tax agencies and related agencies: Fraud, manipulation of financial statements
reduces the amount of tax payable, causes tax losses and reduces budget revenues,
adversely affects the nation's growth and prosperity. At the same time cheating
requires the state and laws to have new regulations with the level of intervention and
control.
In general, in recent years, Vietnam's real estate market has made certain development
steps to meet the needs of the economy. However, after a period of development,
the real estate market has revealed shortcomings and has not been really stable, with
many shortcomings, namely: Transparency of the market, from investment activities,
real estate creation to trading activities of buying, selling, transferring, leasing is still
limited. Speculation is also common in localities, especially in large urban areas,
making the operation of the real estate market unsustainable and stable.

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5. PETITIONS AND SOLUTIONS
In order to solve the problems of real estate market towards sustainable development,
the Law on Real Estate Business was born, effective from January 1, 2007. In addition,
a series of measures have been implemented: forming real estate trading floors,
building a professional team of real estate brokers who are carefully trained and must
have a practicing certificate. The Ministry of Construction's Circular 13/2008/TTBXD dated May 25, 2008 specifies these guidelines, providing specific guidelines
for the investor to announce projects and sell them via real estate trading floors.
real estate, guidelines for some information about real estate. However, based on
the research results, the research team proposes some solutions to limit the risk of
financial statements fraud in listed real estate companies as follows:
The State needs to consolidate and promulgate legal documents on regulations and
information disclosure process. Officers and organizations that make mistakes are
problematic, through organizing the implementation of publicity and transparency of
information related to Vietnam's real estate market, will limit many negative arising.
Improve the state management capacity to organize the implementation of specific
processes, regulations, and regime of information disclosure and transparency.
The real estate market is "sensitive" to information flows, including information that
has not been verified. In addition, there has not been a sufficiently strong handling
mechanism and deterrence to those who cause false rumors. These are loopholes
that many investors take advantage of, "inflate" the information to make a profit,
while the damage will be poured into secondary investors, people, affecting the
development of real estate market
Transparent real estate market information: Real estate brokerage service activities
are formed and developed spontaneously. In parallel with the organizations that have
registered the real estate brokerage business, many households, groups of people
and individuals hang up the real estate brokerage billboards. The main function of
real estate brokerage centers today is to connect buyers and sellers without providing

and analyzing necessary information about real estate. The information system on
the real estate market is still thin, the provision of information is not transparent,
not specific, not public and service organization for the market is still limited.
The purchase and sale are mainly conducted in the form of a turn-over, without
registering with competent state agencies. Currently, transactions on the market
mainly carry heavy factors underground and non-market. The increase and decrease
of real estate prices are mainly judged from the public opinion, or the primary asking
price of the primary market. This creates a trend of investment psychology into
the virtual fever, abnormal hot and cold of the market. Therefore, it is necessary to
quickly build a system of market assessment indicators in a synchronized manner to
help managers, investors and related subjects to get the most accurate view of the
market.

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VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS

REFERENCES
[1]

Nguyen Tran Nguyen Tran, master thesis, Da Nang University, 2014

[2]

Thuc Oanh Vu Thi, Factors affecting the fraud of financial statements of listed companies
on Vietnam's stock market , PhD thesis, National Economics University, 2018

[3]


Thu Trang Ta, Auditing frauds in auditing financial statements of non-financial listed
companies on Vietnam's stock market, PhD thesis, National Economics University, 2017

[4]

/>
[5]

/>
[6]

/>
[7]

cafef.vn

[8]

vietstock.vn

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APPENDIX. 30 REAL ESTATE LISTED COMPANIES ON VIETNAM'S STOCK MARKET
Ticker

1


D2D

Industrial Urban Development Joint - Stock Company No 2

HOSE

2

DIG

Construction Development Investment Joint Stock Corporation

HOSE

3

DLG

Duc Long Gia Lai Group Joint Stock Company

HOSE

4

DLR

Dalat Real Estate Joint Stock Company

5


DRH

DRH Holdings Joint Stock Company

HOSE

6

DTA

De Tam Joint Stock Company

HOSE

7

DXG

Dat Xanh Group Joint Stock Company

HOSE

8

FLC

FLC Group Joint Stock Company

HOSE


9

HAG

Hoang Anh Gia Lai Joint Stock Company

HOSE

10

HDC

Ba Ria-Vung Tau House Development Joint Stock Company

HOSE

11

HDG

Ha Do Group Joint Stock Company

HOSE

12

HQC

Hoang Quan Consulting Trading Service Real Estate Corporation


HOSE

13

IDI

International Development & Investment Corporation

HOSE

14

IDJ

IDJ International Financial Investment and Enterprise Development Joint
Stock Company

15

IJC

Becamex Infrastructure Development Joint Stock Company

HOSE

16

ITC

Investment and Trading of Real Estate Joint Stock Company


HOSE

17

KBC

Kinh Bac City Development Share Holding Corporation

HOSE

18

KDH

Khang Dien House Trading and Investment Joint Stock Company

HOSE

19

LCG

LICOGI 16 Joint Stock Company

HOSE

20

LGL


Long Giang Investment and Urban Development Joint-stock Company

HOSE

21

LHG

Long Hau Joint Stock Company

HOSE

22

NDN

Danang Housing Investment Development Joint Stock Company

HNX

23

NHA

Ha Noi South Housing and Urban Development Corporation

HNX

24


PDR

Phat Dat Real Estate Development Corporation

25

RCL

Cho Lon Real Estate Joint Stock Company

HNX

26

SHN

Hanoi Investment General Corporation

HNX

27

TIG

ThangLong Investment Group Joint Stock Company

HNX

28


TKC

Tanky Construction Real Estate Trading Corporation

HNX

29

VCR

Vinaconex Investment and Tourism Development Joint Stock Company

HNX

30

VIC

VinGroup Joint Stock Company

590

Company

Listing
Bource

No.


HNX

HNX

HOSE

HOSE