Essay: The Fisher College of Business MAcc program places a heavy emphasis on building teams. What experience from your past demonstrates your leadership, your ability to work with others and your skill at resolving conflict?

Toward the end of the fall semester in my sophomore year, while attending the course Financial Cost Management, our instructor assigned a course project in which students were required to form teams to do case studies by investigating the corporate behavior in any fields related to financial cost management. As team leader, by discussing with the other two members of the team, I decided to focus on investigating the incipient auditing scandal of China XXX Airlines Co., Ltd, which is a listed company on New York Stock Exchange and Hong Kong Stock Market.

According to the coverage by the mainstream media, there were two versions of annual financial report for the year 20XX issued by the company. The one prepared according to international financial principles and procedures and reported to overseas investors indicated a loss of 3.5827 billion RMB while the report prepared for domestic investors indicated a slight profitability of 0.1449 billion RMB. With a gap of 3.7276 billion RMB, the irregularity rate reached 2572.85%.

According to the knowledge we had acquired from the course, the extent of abnormality far exceeded the tolerable level and we decided to find out the truth. It would be a Herculean task because rigorous analysis of a wealth of statistics must be carried out. To ensure the success of our undertaking, as team leader, I made a well-defined division of labor. I assumed responsibility for collecting the company’s annual reports over a period of three years since 20XX, including its balance sheets, income statements, and statements of cash flows. A second member was made responsible for constructing mathematic models to analyze and predict about the company’s financial performance. A third member was in charge of collecting the annual reports of three other listed companies in China’s airline industry. When we put all the statistics together and compared the company’s data with those of three other airlines, we found lots of problems about the company’s annual report oriented to domestic investors.

In 20XX, while the majority of China’s listed companies raised the proposed percentage in 8 cost-related areas according to the country’s updated accounting principles, the company did the contrary by lowering the percentage in each of the 8 areas. The company’s 20XX annual reports showed that, by the end of the year, the accounts receivable totaled 0.961824 billion RMB and 1-year accounts receivable was 0.89672RMB, accounting for 93.2% of the total accounts receivable. The company prepared a 0.5% bad debts rate for the 1-year accounts receivable, which only totaled 4.895 million. However, in 20XX, the bad debts rate for the 1-year accounts receivable that the company prepared was 3.7% and if the 200XX report had followed this same rate, then the bad debts for 20XX would have reached 33.1787 million RMB. By this change of bad rates rate, a total of 28.2837 million RMB bad debts were left out. There were also problems about other accounts receivable—by the end of 2003, the company’s 2-year and 3-year accounts receivable were 7.33 million RMB but no preparations for bad debts were made.

By lowering the bad debts rate from 3.7% to 0.5% for 1-year accounts receivable and for 2-and 3-year accounts receivable, the company excluded a loss of 33.2386 million RMB in the form of bad debts in its 2003 annual report. Plus a 15% corporate income tax, the total net profit was reduced by 28.2528 million RMB.

In order to conceal its de facto loss, the company applied a 0.5% bad debts rate so that the company’s financial performance showed a slight profitability. We knew that listed companies are absolutely entitled to adjust their bad debts rate from year to year based on their sound judgments; yet, if the rates differ too radically between two immediate years, listed companies are under the obligation to make reasonable explanations. Otherwise, their motives become highly suspect.

By taking advantage of the China’s immature auditing procedures, the company forged an apparent profitability. By manipulating the magic cube of accounting, the company only sought to fulfill one ulterior purpose—using the false profitability to undertake a new round of financing on the stock market. This is because, for China’s domestic listed enterprises, profitability is the most important precondition for new attempts of financing in a new fiscal year.

At the end our investigation, I authored a 10,000-word report, detailing all the statistics we collected, the mathematic models involving time sequence and regressive method we constructed, the rigorous analyses we performed, and the conclusions we reached. I demonstrated my leadership by masterminding the project, designing the specific steps and procedures of investigation, becoming actively involved in the entire process of investigation, finding appropriate quantitative and qualitative approaches, and preparing the final report. The course Financial Cost Management essentially teaches students how to be “physicians of corporate management” and all the three members worked in close unity because we knew we were involved in something meaningful—we were improving our analytical and problem-solving skills and we were undertaking a project that prepared us to be observers of accounting and auditing ethics. Throughout our entire teamwork, no major conflicts occurred and each member did his or her best to fulfill our mission. This gave me an important experience about teamwork—the best way to avoid conflicts or resolve a conflict is when you involve your team members in an intellectually stimulating and ethically worthy and ennobling project.