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Tuchong Creative/Photos provided by Tan Chudan/Table creation by Zhai Chao/Graphics

Securities Times reporter Tan Chudan

Recently, Tianzhi International Certified Public Accountants (hereinafter referred to as "Tianzhi International") was fined more than 20 million yuan by the China Securities Regulatory Commission for failing to perform its duties diligently and forging, tampering with, and destroying audit working papers in the audit of Qixun Co., Ltd.'s annual report. It was also suspended from engaging in securities services business for 6 months.

On the same day, six IPO projects of Tianzhi International under review in Beijing Stock Exchange were quickly put on hold. As of press time, the relevant review information of Shanghai and Shenzhen Stock Exchanges has not been updated. According to statistics from Securities Times reporters, as of August 17, Tianzhi International had 34 equity financing projects in line in the three exchanges.

According to the experience of Dahua Certified Public Accountants (hereinafter referred to as "Dahua") in the projects it was reviewing, it is difficult for issuers to proceed with the next review process unless they "change firms". Dahua's fines even affect projects that have already obtained registration approvals, and projects that have not yet been issued or are in the process of being issued are also being pushed to "change firms".

Business suspension period

New Year's Eve

On August 16, Tianzhi International was suspended from engaging in securities services business for six months by the China Securities Regulatory Commission. This is another institution among the “Big Eight Domestic Accounting Firms” to be fined and suspended for half a year after Dahua.

The market is concerned about the impact of the above-mentioned fine on Baker Tilly International. As one of the eight major domestic accounting firms, Baker Tilly International has a large customer base in the A-share market. According to statistics from Oriental Fortune Choice, Baker Tilly International has 261 audit clients in A-share listed companies, ranking sixth in the industry.

Compared with Dahua's business restriction period ending at the end of this year, Baker Tilly's suspension period spans the new year, and the listed company will start its 2024 audit work. This means that Baker Tilly's 2024 annual report audit business may face an impact.

In addition to the audit business of listed companies, the equity financing projects under review by Tianzhi International will also be affected. The reporter noticed that on the evening of August 16, six IPO projects of Tianzhi International on the Beijing Stock Exchange entered the "suspension period". Overall, Tianzhi International currently has a total of 24 IPO projects under review, 8 refinancing projects, and 2 M&A and restructuring projects.

According to the reporter's previous interviews with securities investment bank personnel and a review of the progress of Dahua's projects, this type of equity financing projects under review that are affected by intermediary institutions can only advance to the next step of review by "changing institutions", otherwise they will continue to be suspended.

In addition, some projects have to "change firms" even if they have obtained registration approval before the intermediary agency's punishment. For example, when the Boshijie GEM IPO project audited by Dahua started its IPO work in July this year, it simultaneously disclosed the "change of firm". The company obtained the approval in March this year. From the above cases, it can be seen that if the project has not completed the issuance work after approval, the intermediary agency whose business activities are restricted may face replacement.

Multiple issuers

Two "mine-stepping" incidents this year

For projects under review, it is inevitable to be worried about the suspension of the review process due to restricted business of intermediary institutions. Some issuers have even been unlucky and have "stepped on landmines" twice this year.

According to incomplete statistics from the reporter, as many as five issuers hired Dahua as their auditing agency in the early stage, but later changed to Tianzhi International due to the fines issued by Dahua. Now, two consecutive "mines" have once again affected the progress of the project.

Specifically, Dapeng Industry suspended its IPO on the Beijing Stock Exchange in mid-May due to the restriction of Dahua Law Firm’s practice. It was not until it hired Tianzhi International and submitted its review opinion that the review was resumed on June 28. Now the company’s IPO process has been suspended again. A similar situation also occurred with Boda Software’s IPO project on the Beijing Stock Exchange.

Yipin Pharmaceutical's IPO project also failed to meet the requirements of the above two institutions, but the project withdrew its application materials on August 7. It is unknown whether the reason for the termination was related to the auditing agency. As early as late July, there were rumors that Tianzhi International would be severely punished.

Exchanges

Tips for changing offices

Since this year, many projects under review have been affected by the fines issued by the above-mentioned accounting firms and have had to change their intermediary agencies one after another. Therefore, some exchanges have reminded us of the compliance matters that need to be paid attention to.

A Securities Times reporter learned from an investment banker that the Beijing Stock Exchange recently issued the latest issuance and listing review updates to securities investment banks, which clarified the situation of "applying to change sponsors or securities service institutions during the review period."

In terms of replacement procedures, the Beijing Stock Exchange stated that the replaced sponsor or securities service institution shall complete due diligence within three months from the date of suspension of review, re-issue relevant documents, and review the documents issued by the original sponsor or securities service institution, issue review opinions, and explain the differences. The Beijing Stock Exchange will resume the review after review and confirmation.

In terms of review requirements, the Beijing Stock Exchange focuses on whether the review content of the replaced sponsor or securities service institution is complete, whether the review procedures are compliant, whether the review conclusions are clear, whether the replaced sponsor or securities service institution and the signatory personnel have the qualifications and relevant practice conditions.

In terms of special explanations and commitment letter requirements, the Beijing Stock Exchange stated that the reasons for the change, the basic information of the intermediary institution or signatory after the change, etc. should be explained, and commitments should also be made on the authenticity, accuracy, and completeness of relevant documents signed by the intermediary institution or signatory before and after the change.