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Baker Tilly International feels deeply ashamed, saddened and remorseful for the administrative penalty decision of the China Securities Regulatory Commission. We would like to express our deepest apologies to the customers and partners affected by this incident.

Article published on Baker Tilly International’s WeChat official account on August 16

The latest administrative penalty decision posted on the official website of the China Securities Regulatory Commission shows that:Tianzhi International failed to perform its duties diligently in the audit of Qixin's annual report, and the audit report it produced and issued contained false records. In addition, Tianzhi International forged, tampered with, and destroyed the audit working papers.Based on the above, the CSRC ordered Tianzhi International to make corrections and issued a warning.Confiscated business income of 3.6792 million yuan, imposed a total fine of 23.3962 million yuan, and suspended securities service business for 6 months.

Upon investigation, it was found that the party concerned had committed the following illegal acts:

Tianzhi International failed to perform its duties diligently in the audit of Qixin Shares' annual report, and the audit report it produced and issued contained false records.

According to another case,Qixun Co., Ltd.'s annual reports from 2015 to 2019 contained illegal and irregular information disclosure behaviors such as inflating revenue and total profits.Tianzhi International provided audit services for the financial statements of Qixin Shares, with a total audit revenue of RMB 3,679,245.28 (after tax). Tianzhi International issued a standard unqualified audit report with false records. Tianzhi International failed to perform its duties diligently in the audit of Qixin Shares' annual report, which was mainly reflected in the following aspects:

First, the risk identification and assessment procedures were not properly implemented.For example, the audit working papers did not include any audit procedures for identifying and assessing the risk of material misstatement at the financial statement level, nor did they include any audit procedures for determining whether the identified risks were special risks based on professional judgment. No relevant audit procedures were conducted based on the assumption that there was a risk of fraud in revenue recognition. Accounts receivable and bad debt reserves were both identified as having a risk of fraud, but they were not considered special risks.

Second, there are defects in the substantive procedures for monetary funds.For example: false records of audit procedures such as obtaining bank statements on site that were not actually performed, and due attention was not paid to a large number of obvious anomalies in the transaction information, seals, and formats in the obtained statements. The bank deposit confirmation letter opened by the company at the Shenzhen Branch of Ningbo Bank had abnormalities such as the sender of the reply letter was a company employee, and the sender unit and address of the reply express delivery form were blank, and professional suspicion was not maintained. The large-amount fund flow inspection could not meet the audit requirements of accounts receivable in terms of sampling scale and inspection content, and could not provide sufficient evidence for the audit of accounts receivable.

Third, there are defects in the substantive procedures for notes payable.For example: they failed to maintain professional suspicion regarding the large and frequent issuance of commercial bills between Qixin Shares and companies with which it had no business dealings, the accounting of payables related to the main business in the "other payables" account, the accounting of negative credit figures when other payables decreased, and the obvious anomalies in bank receipts in some sample vouchers.

Fourth, there are defects in the audit procedures for implementing project costs.For example, Qixin Co., Ltd. entered and controlled all the company's engineering projects through the "engineering management system" it developed, but Tianzhi International did not fully understand the relevant engineering project management situation and did not conduct relevant IT audits on the "engineering management system", so it did not discover that the company had a large number of internal contracting projects with low gross profit margins, and the actual gross profit margin situation was seriously inconsistent with the company's disclosure. It did not maintain professional suspicion of abnormal situations such as Qixin Co., Ltd.'s rapidly growing labor cost expenditures and the large difference between the planned cost of direct labor and the actual cost structure. It did not implement inventory inspections in accordance with the inspection scope of the "Inventory Inspection Plan".

Baker Tilly International forged, tampered with, and destroyed audit working papers

In January 2022, the Shenzhen Securities Regulatory Bureau sent a "Supervision and Inspection Notice" to Tianzhi International, requesting the audit working papers of Qixin Shares' financial statements.Relevant personnel of Baker Tilly International Shenzhen Branch forged, tampered with and destroyed the audit working papers of Qixin’s financial statements. Baker Tilly International submitted the aforementioned working papers to the regulatory authorities and made false assurances about the authenticity, accuracy and completeness of the working papers.The acts of forgery, tampering and destruction mainly include: tampering with the materiality level and the sampling and confirmation standards of various detailed tests, deleting or modifying the confirmation letter records, falsifying audit procedures that are not actually performed, deleting or modifying the sampling records in the inspection of large-scale funds collection and payment, and deleting the formal audit instructions in the audit working papers.

The CSRC believes that according to Article 27 of the Supervision and Administration Measures, accounting firms should bear legal responsibility for the business activities and practice quality of their branches. The above-mentioned behavior of Baker Tilly International violates Article 162 of the Securities Law and constitutes a violation of the law as described in Article 214 of the Securities Law, and the circumstances are serious.

According to the official website of Baker Tilly International, the accounting firm was founded in December 1988 and is headquartered in Beijing. It is a large-scale comprehensive consulting firm specializing in audit and certification, capital market services, consulting services, tax services, legal affairs and liquidation, and corporate valuation. It has more than 8,000 professionals, including more than 1,200 certified public accountants, and has more than 30 central enterprise groups as annual audit clients and nearly 300 listed company clients.Currently, there are 24 IPO projects being handled by Baker Tilly International at the three major exchanges in Shanghai, Shenzhen and Beijing.