Finance Association, May 14 (Reporter Gao Yanyun) When the ticket was landed, Dahua was severely punished. Today, more specific penalty results were revealed.

According to the latest disclosure of fines by the Jiangsu Securities Regulatory Bureau, Dahua was ordered to make corrections, seize business revenue of 6.886,800 yuan, and suspend the securities service business for 6 months; gave a warning to Fan Rong and fined 1.5 million yuan; gave a warning to Yan Lisheng and fined 800,000 yuan; issued a warning to Ho Chi Kong and imposed a fine of 400,000 yuan. The amount of fines imposed on Dahua was 5 times the business revenue, reaching “no one penalty five”. The total amount of forfeiture was 44.0208 million yuan.

The Jiangsu Securities Regulatory Bureau pointed out that when Dahua audited Jin Tongling's financial statements for the year 2017 to 2022, the risk assessment and internal control testing procedures had major flaws, failed to take proper audit measures to deal with the risk of fraud, had major flaws in the substantive procedures, violated the provisions of relevant practice standards, failed to fulfill the obligation of diligence and due diligence, and the audit report issued false records.

Regarding the penalties imposed by Dahua, they can serve as a warning to the certified public accountant industry, but what cannot be ignored is that some intermediaries still have a long way to go in carrying out their duties as diligent and responsible gatekeepers. Industry veterans pointed out that it is necessary to increase the cost of “gatekeepers” breaking the law. Only by increasing penalties can intermediaries and practitioners be more effective in promoting compliance and exhibition.

This penalty has already had an impact on Dahua's business. More than 15 listed companies have cancelled cooperation with Dahua in the past two days. Furthermore, in terms of the IPO audit business, currently, out of 47 Dahua firms this year's audit projects, 34 have been suspended, and 12 have been terminated due to the withdrawal of materials.

There are false records of Jin Tongling's multiple financial reports audits

According to the investigation by the Jiangsu Securities Regulatory Bureau, Dahua has the following illegal facts.

When Dahua Institute audited Jin Tongling's financial statements for the year 2017 to 2022, he was not diligent and conscientious, and the audit report issued false records.

The 2017 to 2021 annual audit reports issued by Dahua all included Jin Tongling's construction contract revenue confirmation as a key audit matter. There were major flaws in risk assessment procedures and internal control testing procedures related to construction contracts. Among them, during the 2017 annual report audit, the project team found that there was no reliable basis for the revenue, operating costs, and completion progress of the Jin Tongling construction contract project; the project manager had major differences with the company over the actual investment cost confirmation method for the construction contract; the professional judgment on the revenue recognition method for the construction contract was seriously inadequate; there was no understanding of internal control activities related to the construction contract business in the audit work paper. There were no control tests on key control points of the construction contract business.

There were major flaws in the substantive procedures relating to construction contract revenue from 2017 to 2022. First, there was a clear difference between the on-site inspection situation of some projects and the company's book confirmation schedule; Dahua did not re-evaluate the company's possible risk of financial fraud and did not take appropriate audit countermeasures; second, it did not effectively implement the construction contract business site inspection procedure; and third, it did not consider whether changes in inventory between the inspection date and the balance sheet date have been properly recorded.

There were major flaws in the substantive procedures relating to construction contract revenue in 2018. First, major abnormalities in the Daimyo project discovered in this year's audit were not re-evaluated based on the information learned in the previous year's audit, and further procedures such as site visits were not implemented to deal with the risk of fraud; second, responses to obvious abnormalities did not maintain professional doubts; and third, on-site supervision procedures for construction contract business were not effectively implemented.

There were significant flaws in the substantive procedures relating to revenue from construction contracts in 2019.

There were major flaws in the substantive procedures relating to construction contract revenue in 2020. The accountant did not pay attention to the abnormal situation where the completion schedule was inconsistent with the approved completion schedule revealed in the field interview, and the abnormal situation where the equipment investment confirmed by the construction contract business did not match the installation progress.

There were major flaws in the substantive procedures relating to construction contract revenue in 2021, and major flaws in the substantive procedures relating to construction contract revenue in 2022.

In terms of determining the parties' responsibilities, Fan Rong is the project partner and signed certified public accountant for the 2017 to 2021 audit report, Yan Lisheng is the signed certified public accountant for the 2018 to 2022 audit report, and Hu Zhigang is the certified certified public accountant who signed the 2017 audit report, and the project partner and signed certified public accountant for the 2022 audit report. Among them, Ho Chi Kong, as the certified public accountant who signed Jin Tongling's 2017 audit report, has passed the administrative penalty statute of limitations.

Dahua Certified Public Accountants issued a statement saying that Dahua Institute sincerely accepted the penalty decisions of the supervisory authorities, consciously accepted supervision by various regulatory agencies, corporate clients, and all parties in society, carried out comprehensive rectification as required, and organized deep reflection throughout the firm.

Liu Zhigeng, a well-known financial and taxation expert and senior certified public accountant, said that suspending practice for 6 months is a heavier penalty, but based on the penalty period, it is expected that it will be difficult to affect Dahua's 2023 and 2024 annual report audit services. However, it cannot be ignored that the penalty will have an impact on Dahua's industry reputation and customer status, and will naturally reduce some customers as a result.

“The penalties imposed on Dahua, whether it is suspension of practice or the amount of fines, should be heavy. This is a need to consolidate the 'gatekeeper' responsibilities of intermediaries such as accounting firms, and it is a good warning for the entire certified public accountant industry.” That's what Liu Zhigeng said.

Liu Zhigeng mentioned that over the years, the handling and punishment of intermediaries such as accounting firms has become a cliché. Judging from the actual situation, not only are there more and more problems, but the amount of illegal violations is also getting bigger. The most fundamental problem is that the penalties are too light, so the cost of these “gatekeepers” breaking the law is too low. Therefore, increasing the level of punishment can only really play a proper warning role if these “gatekeepers” are punished and punished so that they don't dare again next time, or even go bankrupt.

Some people in the industry also pointed out that the failure of intermediaries to be diligent and conscientious is already a persistent problem in the securities market. In some cases, it is due to negligence and carelessness, and sometimes they deliberately cater to clients.

15 listed companies cancel cooperation with Dahua

Dahua's business was widely affected by the penalties, and a number of listed companies cancelled their cooperation.

According to statistics, 15 A-share listed companies, including Ganli Pharmaceutical, Guoxin Energy, *ST Huichen, Songyang Resources, ST Intercontinental, Haixin Food, Zhongyuan Internal Distribution, Power Diamond, Boss Software, Taiji Co., Ltd., Jiahe Meikang, Kuncai Technology, Yuandong Transmission, Jinming Precision Machine, and Zhiyuan New Energy announced the cancellation of cooperation with Dahua in the past two days.

As for the reason for the cancellation of the cooperation, Boss Software, Kuncai Technology, and Haixin Foods clearly stated that Dahua recently received administrative penalties from the Jiangsu Securities Regulatory Bureau; Ganli Pharmaceutical, Guoxin Energy, *ST Huichen, Songyang Resources, ST Intercontinental, Power Diamond, Taiji Co., Ltd., Jiahe Meikang, Yuandong Transmission, Jinming Precision, and Zhiyuan Xinneng announced that due to Dahua Institute's recent related matters, the company has yet to further verify.

It is worth paying attention to whether the IPO projects audited by Dahua will be further affected.

Since this year (as of May 13), 46 IPO projects provided by Dahua for audit services have been terminated or suspended. Of these, as many as 12 projects have been terminated due to the withdrawal of materials, and 34 projects have been suspended. Six IPOs were terminated in April due to the withdrawal of materials, and news broke that Dahua Securities's service business was suspended around mid-April.

Kim Tong-ling has cheated on finances for 6 consecutive years

Kim Tong-ling's financial fraud actually lasted 6 years. According to Dahua's disclosure, the firm was suspended from carrying out the securities service business for 6 months, that is, because it undertook Jin Tongling's annual report audit business.

On November 20 of last year, Jin Tongling announced that it had received an advance notice of administrative penalties. From 2017 to 2022, Jin Tongling and many of its subsidiaries inflated or reduced total revenue and profit through various means.

In 2017, 2018, 2021, and 2022, Jintongling's inflated revenue was 501 million yuan, 550 million yuan, 689.307 million yuan, and 153.085 million yuan respectively, and the total inflated profit was 146 million yuan, 148 million yuan, 73.8871 million yuan, and 43.273 million yuan respectively; in 2019, Jin Tongling reduced revenue by 197 million yuan and a total inflated profit of 385.277 million yuan; in 2020, Jintongling reduced revenue by 5.3768 million yuan and inflated profit of 57.308 million yuan.

The Jiangsu Securities Regulatory Bureau plans to decide to order the correction, give a warning, and fine of 1.5 million yuan; give a warning to the then-chairman, vice chairman and general manager Ji Wei, and a fine of 2 million yuan; give a warning to then-financial director and board secretary Yuan Xueli, and fine of 1 million yuan; give a warning to the assistant general manager and then-director Mao Xinpeng, and pay 600,000 yuan in each case. The details of the above punishment came into effect on January 3 of this year.