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Accounting firms have been fined frequently. As of August 22, regulators have issued 158 fines this year, affecting 32 accounting firms. In many cases, both institutional and individual penalties were imposed, and 273 people were fined for violations.

In terms of qualification penalties, since 2023, there have been five cases of accounting firms being suspended from securities business.

In August this year, Tianzhi International was fined 27.0754 million yuan and suspended from securities services for 6 months.

In May, Dahua was fined a total of 41.3208 million yuan and suspended from securities services for 6 months.

In March last year, the Ministry of Finance suspended the business of Deloitte Beijing Branch for three months, confiscated the illegal gains of Deloitte Beijing Branch and imposed a total fine of 212 million yuan;

In July last year, the Ministry of Finance suspended the operations of the Asia-Pacific Institute and the Hexin Institute for three and two months respectively.

In addition, there have been recent rumors that the results of the regulatory investigation into PricewaterhouseCoopers will soon be announced due to its involvement in the Evergrande financial fraud incident. PricewaterhouseCoopers will face a fine of up to 500 million yuan and a six-month suspension of its mainland business. At present, the above rumors have not been confirmed.

32 accounting firms received 158 fines

According to statistics from Yidong, the accounting firm with the most fines this year is Lixin Accounting Firm, with as many as 26 fines; the accounting firms with more than 5 fines include Dahua Accounting Firm (17), Deloitte China Accounting Firm (11), Panjian Accounting Firm (10), Tianheng Accounting Firm (9), Zhongxing Caiguanghua Accounting Firm (9), Rongcheng Accounting Firm (9), Daxin Accounting Firm (9), Zhongtianyun Accounting Firm (7), and Tianzhi International Accounting Firm (5).

In addition, there are three accounting firms that received four fines, namely Zhongzhun Accounting Firm, Zhongxinghua Accounting Firm, and Zhonghui Accounting Firm; those that received three fines are Deloitte Accounting Firm, Asia Pacific (Group) Accounting Firm, Hexin Accounting Firm, and Zhongxi Accounting Firm; those that received two fines are Shanghui Accounting Firm, Ruihua Accounting Firm, Sigma Accounting Firm, Zhongshen Asia Pacific Accounting Firm, Yongtuo Accounting Firm, and Beijing Zhongtian Huamao Accounting Firm; those that received one fine are Beijing Dongshen Accounting Firm, Suya Jincheng Accounting Firm, Zhongshen Zhonghuan Accounting Firm, EY Huaming Accounting Firm, Chongqing Kanghua Accounting Firm, PricewaterhouseCoopers Zhongtian Accounting Firm, Zhejiang Tianping Accounting Firm, Sichuan Dewen Accounting Firm, and Huaxing Accounting Firm.

In terms of violation types, there were 133 tickets for audit procedural defects and irregular working papers, accounting for 84.18%. Other major violation types included errors and false records in financial reports, failure to maintain reasonable professional skepticism, asset impairment and other audit irregularities.

The types of penalties include issuing warning letters (92), written warnings (32), orders to correct and administrative penalties (12), administrative penalties (6), regulatory talks (4), market bans (4), criticism (3), temporary non-acceptance of business applications and public condemnation (2), orders to correct (2), orders to correct and suspension of business and administrative penalties (1).

Tianzhi and Dahua Securities were suspended from securities business for 6 months

Since the beginning of this year, two accounting firms have had their securities businesses suspended.

On August 16, the China Securities Regulatory Commission disclosed the fine, and Tianzhi International Accounting Firm was ordered to make corrections, given a warning, confiscated business income of 3.6792 million yuan, fined 23.3962 million yuan, and suspended from securities service business for 6 months. Tianzhi International Accounting Firm committed the following illegal acts: first, it failed to perform its duties diligently in the audit of Qixin Shares' annual report, and the audit report it prepared and issued contained false records; second, Tianzhi International forged, tampered with, and destroyed the audit working papers.

On May 14, Jiangsu Securities Regulatory Bureau disclosed the penalty notice, which showed that Dahua was ordered to make corrections, confiscated business income of 6.8868 million yuan, imposed a fine of 34.434 million yuan, and suspended from securities service business for 6 months; the penalty notices for the relevant responsible persons and the signing certified public accountants were as follows: Fan Rong was given a warning and fined 1.5 million yuan; Yan Lisheng was given a warning and fined 800,000 yuan; Hu Zhigang was given a warning and fined 400,000 yuan. In summary, the total amount of fines and confiscations was 44.0208 million yuan.

The Jiangsu Securities Regulatory Bureau believes that when Dahua audited Jintongling's annual financial statements from 2017 to 2022, there were major defects in the risk assessment and internal control testing procedures, it failed to take appropriate audit measures to address the risk of fraud, and there were major defects in the substantive procedures. It violated the relevant practice standards, failed to fulfill its obligations of due diligence, and the audit report issued contained false statements.

Rumors of being fined NT$500 million and having its mainland business suspended for half a year resurface

Recently, there are rumors that the regulatory investigation into PricewaterhouseCoopers' involvement in China Evergrande's financial fraud is about to begin, and PricewaterhouseCoopers will face a fine of up to 500 million yuan and a six-month suspension of its mainland business, including a ban on accepting new clients and signing mainland companies' accounting reports. Sources pointed out that the fine is expected to be announced before the end of this month and will be the Ministry of Finance's most severe penalty on accounting firms.

There are also rumors that "the first draft of the relevant penalty notice uses very harsh words to reflect the seriousness of its behavior. PwC is currently making final negotiations with the regulator on these 'words' in an effort to reduce the negative impact on itself. Judging from the regulator's preparations, it is estimated that it will be released soon."

If the "fined 500 million yuan" is true, the fine is equivalent to PwC's A-share securities and audit revenue for half a year. Relevant statistics show that in 2022, PwC's securities and listed company audit revenues were between 500 million and 700 million yuan; in 2023, PwC had 107 A-share annual report audit clients, with audit fee revenue exceeding 800 million yuan.

Liu Zhigeng, a senior CPA and well-known financial and tax audit expert, told reporters that if the above rumors are true, both the nominal penalty of suspending practice for six months and the actual penalty will be of little significance.

Liu Zhigeng said that if the practice is only suspended for six months, there are two problems. First, the punishment is too light, because compared with the problems of other accounting firms that have been suspended for six months or even one year in recent years, the punishment is obviously too light in terms of the severity and severity of the problems. Second, if the practice is really suspended for six months from September, that is, the accounting firm cannot issue business reports before the end of February next year, then in the first two months of next year, the firm can first conduct on-site audits and not issue reports. The report will be issued after the practice is resumed on March 1 next year. Since the deadline for the disclosure of annual reports of listed companies is the end of April, there are still two months, which is enough for the accounting firm to issue all annual audit reports. Therefore, from this situation, the six-month suspension of practice does not have much substantive impact on the accounting firm.

Although the fine has not been issued, PwC has already fallen into a business crisis. Since the end of May this year, more than 30 A-share listed companies have announced the dismissal of PwC, including well-known listed giants such as China Telecom, PetroChina, PICC, China Merchants Bank, Haitong Securities, Bank of Ningbo, Shanghai Electric, China Railway Construction Corporation, and China Merchants Port.

Resolutely impose "qualification penalties" on serious law-breaking entities

The regulatory attitude towards intermediary institutions such as accounting firms has always been clear, that is, strict and strong supervision.

On August 17, the CSRC released a summary of its administrative law enforcement in the first half of 2024, which mentioned that the "gatekeeper" responsibility should be tightened and intermediary institutions should be severely punished for illegal acts that fail to perform their duties diligently. On the one hand, "double penalties" should be imposed on institutions and responsible individuals in accordance with the law. On the other hand, "qualification penalties" should be resolutely imposed on illegal entities that seriously neglect their duties and responsibilities.

Recently, regulators issued new rules to adjust the charging methods of intermediary agencies to reduce the occurrence of short-sighted behavior.

On August 16, the Ministry of Justice, together with the Ministry of Finance and the China Securities Regulatory Commission, drafted the "State Council Regulations on Regulating the Services Provided by Intermediary Institutions for Public Offering of Stocks by Companies" and opened for comments. Among them, the new regulations require that accounting firms can charge service fees in stages according to the progress of the work when performing audit services, but whether to charge or how much to charge cannot be based on the results of the audit work or the results of the public offering of stocks.