Manipulating financial statement – signature dish of Vietnam’ stock market

The bigger company, the more manipulating profit. Regardless of the fact that payment of corporate income tax could be billions Vietnam dong, many public companies still disguise their financial results.

Normally, fictitious revenue created by disposing projects which are not effectively operated to related parties on credit at unreasonably high price. Related parties could be legally unrelated but related on management perspective. A “worldwide brand” company could have familiar partners buy a building. A real estate enterprise sometimes generates income from operation non-real estate activities and its stock price is still under par value after all.

The latest obvious trick ever occurred in Vietnam stock market as follow: an enterprise which has wide scope in infrastructure had established a subsidiary this day and sold it to foreigner partner on the following day, made profit of BVND150 in a day. “The new established subsidiary would own high value projects transferred from parents” – explained the enterprise’s president.

So, how those cash flowed? Big companies who can get big loan will transfer the money to their partners and have them buy their product. The cash inflow from bank, then flows to the partners and come back to the enterprise in the name of cash inflows from operating activities. Those are cash inflows after all. For small enterprises, instead of transfer bank loan to partners to buy, they sell them on credit and increase account receivables and cash inflow also. Those issues create invisible pressure on the enterprises which shareholders are unable to see.

It could be said that manipulating financial statement is a signature dish of Vietnam’ stock market, a risk of high return.