In The Ninth Phase Of Supervision, There Is Something To Say About The New Securities Law: How Do Audit Institutions Perform "Gatekeepers"?

The finance committee meeting held in April 15, 2020 mentioned that some recent listed companies ignore laws and rules, engage in financial fraud and other bad acts that infringe on the interests of investors. The Finance Commission has explicitly demanded that regulators strictly compacted the responsibility of intermediaries, deal with fraud, fraud and other acts seriously, and ensure that listed companies are truly, accurately, completely and timely disclosure.

In the past few weeks, the financial fraud of Rui Xing coffee has aroused great concern in the market. Among them, the agency, especially the auditors' diligence and performance, is also highly concerned by the public.

Almost every year, the financial fraud of listed companies occurs in the domestic capital market. After one or more frauds, the market also realizes that the intermediaries, especially the auditing institutions, are important gatekeepers in the capital market. Whether they strictly perform the statutory duties such as verification verification and professional clearance, whether they urge the listed companies to standardize their operations and disclose them in real terms, can improve the listing of the listed companies. The quality of financial information disclosure, especially the quality of disclosure of periodic reports, is very important.

The club is also a letter.

It is worth noting that the new securities law highlights the importance of "diligence and accountability" for gatekeepers.

Since March 1st, the new securities law has been formally implemented. It has abolished the qualification examination and approval of audit and evaluation institutions engaging in securities business and changed to record management. By strengthening the post supervision of intermediaries, increasing the penalties for illegal and illegal actions, the regulatory authorities will urge intermediaries to strengthen the level of business risk management and establish a self-restraint mechanism to further consolidate the responsibilities of "gatekeepers" in the intermediary market.

From the "qualification examination" to "record management", the core is also the spirit of registration system to reduce administrative examination and approval, while the front-line regulation will directly transform the requirements of accounting firms to information disclosure requirements, which is exactly consistent with the background of registration system. At present, the reporter has learned that in order to better link up with the new securities law and further strengthen the relevant information disclosure requirements of the accounting firms, the Shenzhen Stock Exchange has formulated and promulgated the announcement format for the accounting firms to be appointed by listed companies, which has been implemented since March 1st.

The format of the new announcement has increased the professional competence of accounting firms, administrative supervision and self-discipline, disclosure requirements of project partners, quality control heads, certified public accountants and other important project managers.

Looking at essence through hiring chaos

In the wake of the end of the annual report, investors should remain vigilant against those listed companies that change accounting firms and employ accountants with no experience in securities service.

If the storm group has not yet hired the chief financial officer and the annual audit institution, the company may be unable to disclose the annual report on schedule because of net asset index. In February, the Shenzhen stock exchange sent a letter to the company requesting to explain the reasons for and the subsequent arrangements for the appointment of the annual examination institution.

The same has not yet been invited to the annual audit institutions, and the magic fog environmental protection. In April 14, 2020, the company disclosed that it was planning to appoint Beijing blue Yu as the annual auditor. The announcement showed that there were 7 registered accountants in Beijing, including 3 people with experience in securities service business, and 0 in securities business in the latest year. On the same day, the Shenzhen stock exchange sent a letter requesting the company to explain the reasons for the appointment of audit institutions without securities service business, and whether there was a purchase audit opinion.

Since then, as many as 30 Shenzhen listed companies have announced the change of accounting firms. Especially since March, 14 companies such as Condall and Hongda Xingye have changed their annual auditor. The reasons for the replacement of the company vary, including the impact of the epidemic, scheduling problems, changes in the practice team, and the long service life of the previous firms.

But for the deep-seated reasons and hidden problems and risks of the replacement, we need to combine the company's operation, standardized operation and risks. The closer the date of the annual report is, the more likely it is that the company may have a higher audit risk or that management and audit institutions are divided on the major issues.

For instance, Qin Shang shares and *ST Liyuan have been tossing about in the matter of changing audit institutions. In 2019, auditor went through a tortuous process from Ruihua to Zhonghua and then to Ruihua. The same is true of *ST Liyuan. In March 31, 2020, the company disclosed that it was intended to change the annual examination institution from the central authority to the letter office. In April 1st, it replied to the letter from the Shenzhen stock exchange that the company told the company not to undertake the annual trial business in April 1st, and the company disclosed that the company continued to undertake the annual trial business in April 16th.

But in fact, *ST Liyuan subsidiary Shenyang Liyuan reorganization plan has not yet been ruled by the court, the company may not be able to determine the amount of the receivable impairment and the amount of the loss of guarantee liability when it discloses the annual report. Because the company's financial report was issued in 2018 was unable to express its views has been implemented risk warning of delisting, the 2019 annual report audit opinion, whether the company will suspend the listing will have a major impact.

Urging audit institutions to be diligent and conscientious

In the context of the new securities law, regulators have been very concerned about the performance of audit institutions for a long time. The disclosure period of annual reports is an important window period for regulators to pay attention to the performance of intermediary agencies.

The Finance Committee discussed the need to compactthe intermediaries' responsibility to ensure the true, accurate, complete and timely disclosure of information. Undoubtedly, it also put forward higher requirements for the performance of intermediary agencies after that.

However, at present, some audit institutions still have much room to improve their duty of "gatekeeper". According to the 2019 audit and evaluation institution's inspection by the SFC, there are some problems in the practice of audit institutions, such as the lack of key procedures, the lack of important evidence, the formality of work and the inappropriate type of audit opinions.

For example, ST Tianrun was issued a negative opinion on the internal control attestation report in 2018, and the company's large amount of violation guarantee did not raise the estimated liabilities. When the accountant fails to control the internal control of the company's financial report, it is not universality to misjudge the financial statements. Instead of expressing his opinion or negative opinion, he is suspected of using reservations instead of reservations. At present, ST Tianrun has been investigated by the SFC.

In addition to the above problems, such as assault and replacement offices, some companies adjust profits through the provision of large impairment and year-end assault and profit creation, so as to avoid delisting. Under these circumstances, whether the audit institutions make accurate judgments on accounting treatment in combination with the essence of transactions will have a significant impact on the company's profit and loss nature, the implementation of delisting risk warning and suspension of listing. According to incomplete statistics, the Shenzhen Stock Exchange has issued more than 170 letters of concern to the accountants for the annual examination of 2019, urging the accountants to work diligently and conscientiously.

Capital market is the market with information disclosure as the core, and financial information is the most basic and important information in the capital market. As an independent third party, audit institutions should be prudent and diligent, return to their duties, keep the bottom line, urge listed companies to improve the quality of financial information disclosure, and give full play to the role of "gatekeeper" in the capital market.

The capital market is an ecosystem. It is necessary for all parties to work together to build a good ecosystem. As an important intermediary service institution in the capital market, the auditing quality and credibility of audit institutions are very important for the sustained and healthy development of capital market. Only by adhering to the bottom line of honesty and trustworthiness, adhering to the practice of risk and quality first, respecting professional and realistic craftsmen culture, guarding the door and guarding the customs, can audit institutions truly live up to the title of "gatekeeper" in the capital market.

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