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the chinese institute of certified public accountants has begun to support accounting firms.

recently, some ipo biddings require accounting firms to promise not to be suspended from business, and if they are suspended, they must pay compensation. this is also a landmark event in the transition from regulatory-driven to market-driven, and the quality of audit firms' practice is ushering in a hard review.

the china institute of certified public accountants said on september 5 that whether an accounting firm will be suspended from relevant business qualifications in the future is affected by multiple factors and is an unforeseeable matter. adding the above commitment to the business agreement exceeds the responsibilities that accounting firms and certified public accountants should bear.

the chinese institute of certified public accountants said that accounting firms should promptly seek the opinions of legal experts, fully evaluate the fairness of the terms of relevant audit business engagement letters, prudently sign business engagement letters, and safeguard the legitimate rights and interests of accounting firms and certified public accountants.

the china institute of certified public accountants speaks out

two things have happened recently that have made accounting firms more vigilant:

one is that when a certain enterprise entity is selecting an ipo audit service agency, it bids for three accounting firms at the same time, one as the main choice and two as backup choices. when the main accounting firm is subject to regulatory penalties, the backup firm will be automatically selected;

second, when hunan ordnance was selecting an accounting firm, it recently required that within one year from the date of publication of the tender notice, the bidder's auditing agency would not be restricted by the china securities regulatory commission's suspension of acceptance or review of application materials, and would not have its securities business qualifications suspended (the bidder must provide a letter of commitment, the content of which should include: if the aforementioned situation occurs, compensation will be paid at twice the amount of the fees paid by the tenderer at that time).

obviously, when audit institutions are auditing market entities in accordance with the law, market entities are examining audit institutions with a more stringent eye.

on september 5, the chinese institute of certified public accountants issued a special document to remind accounting firms to pay attention to the risk of "promising not to have their securities business qualifications suspended in the future."

the china institute of certified public accountants reminds that the certified public accountants law of the people's republic of china stipulates that certified public accountants and accounting firms shall perform their business independently and impartially in accordance with the law and be protected by law. the responsibility of certified public accountants is to perform audit work in accordance with auditing standards and relevant professional ethics requirements, and to express audit opinions on whether the financial statements are prepared in accordance with the applicable financial reporting framework in all material aspects and are fairly presented.

the china institute of certified public accountants said that whether accounting firms will be suspended from relevant business qualifications in the future is affected by multiple factors and is an unforeseeable matter. adding the above commitments to the business agreement exceeds the responsibilities that accounting firms and certified public accountants should bear. in the bidding process or in the process of undertaking business, accounting firms should, on the basis of full consultation with audit clients, promptly seek the opinions of legal experts, fully evaluate the fairness of the terms of the relevant audit business agreement, prudently sign the business agreement, and safeguard the legitimate rights and interests of accounting firms and certified public accountants. at the same time, accounting firms and certified public accountants must strictly perform their audit and certification duties in accordance with the law, improve audit quality, play a role in professional supervision, and ensure independent, objective, fair, and standardized practice.

several accounting firms have been suspended from business

regulators have issued a large number of fines to accounting firms this year, indicating a trend of stricter supervision.

on august 16, the administrative penalty decision issued by the china securities regulatory commission showed that it was found that tianzhi international accounting firm did not perform its duties diligently in the audit of qixun co., ltd.'s annual report, and the audit report it produced and issued contained false records; tianzhi international forged, tampered with, and destroyed audit working papers.

in response to this, the csrc decided to order tianzhi international accounting firm (special general partnership) to correct its mistakes, give it a warning, confiscate its business income of 3.68 million yuan, impose a fine of 23.4 million yuan, and suspend it from engaging in securities services business for 6 months.

on may 13 this year, the jiangsu securities regulatory bureau announced an administrative penalty decision, suspending dahua accounting firm (special general partnership) from engaging in securities services business for 6 months. dahua and its three signing certified public accountants were fined a total of 41.32 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.

according to incomplete statistics from securities china reporters, as of now, the securities regulatory authorities have punished accounting firms engaged in securities business 13 times this year. in terms of the frequency of penalties, the 19 administrative penalties in january-august 2024 are close to the 19 administrative penalties in the whole year of 2023; in terms of the amount of penalties, the fines in january-august 2024 reached 125 million yuan, which is 1.3 times the amount in the whole year of 2023. baker tilly international accounting firm (special general partnership) and dahua accounting firm (special general partnership) have both been suspended from engaging in securities services for 6 months.

audit institutions usher in a more market-oriented elimination mechanism

holding an accounting firm qualification certificate issued by the competent industry department and having securities and futures service-related business qualifications are only the minimum threshold.

more and more bidding companies require that the accounting firms serving them must not have suffered major asset losses or major financial fraud in the companies they are responsible for auditing in recent years; must not have been subject to administrative penalties such as confiscation of illegal gains, fines, and suspension of part of their business by the ministry of finance or provincial finance departments due to illegal and irregular activities; must not have been subject to administrative penalties for fraud and malpractice or warned by relevant departments; and must not have had their qualifications to engage in securities services suspended by the china securities regulatory commission.

when some accounting firms participate in bidding, they may even be required to have a scale, resources and risk tolerance that matches the asset size, business complexity, etc. of the bidder.

industry insiders analyzed that audit institutions are facing a stricter market-based elimination mechanism, and the quality of practice is unprecedentedly placed in an important position for evaluation. with the collapse of pwc, the market is breaking the blind trust and simple belief in "big firms". having a good business reputation, a sound financial and accounting system, a clean history of not being punished by regulators or suspended from business, and a stable and responsible practice team, these "soft powers" are as important as the "hard threshold" represented by the professional qualification certificate.

as strict supervision and management continue, the responsibilities of intermediary institutions, including auditing agencies, as "gatekeepers" in promoting corporate listings and financing are increasing, and the market is also placing higher demands on "gatekeepers."

many market analysts believe that ipo intermediary institutions, including auditing agencies, do need to strictly fulfill their responsibilities of verification and validation, ensure the fairness, professionalism and transparency of their practices, improve the quality of listed companies from the source, and protect the legitimate rights and interests of investors.

some even believe that, whether driven by regulation or market players, only when the overall practice quality of intermediaries improves can it be possible to urge listed companies to improve the quality of information disclosure. and only when listed companies that truly disclose information in a standardized, true and complete manner can enter the market, can the efficiency and transparency of market operation be improved, and the stability of the capital market be further consolidated.