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22 Feb CSRC to Punish 14 Audit and Evaluation Agencies after 2020 Annual Inspection
CSRC on February 19 issued the inspection results of audit and evaluation institutions in 2020, as reported by Caixin on the same day. Based on the overall and special inspections, CSRC announced to impose relevant penalties on eight audit agencies, 28 certified public accountants, six evaluation authorities, 27 asset appraisers, as well as six practitioners who illegally trade stocks.
According to the report, in 2020, CSRC conducted comprehensive inspections of two audit institutions and two evaluation institutions, with random checks of 31 audit projects and 19 evaluation projects; special inspections on 11 audit projects and seven evaluation projects; and themed inspections on 82 audit projects regarding listed company controlling shareholder capital occupation. In addition, all securities regulatory bureaus across the country reviewed a total of 217 audit projects and 37 evaluation projects in their jurisdictions.
CSRC unveiled three main problems during the 2020 inspections. First, in terms of the management of institutions, there is generally imperfect internal control. Second, as for audit practice, outstanding issues included lack of suspicion, failure of maintaining reasonable attention to major abnormalities and abnormal signs in important audit evidence, and taking further countermeasures. Last, for appraisal practice, the income method appraisal has an insufficient basis for forecasting operating income, its growth rate, gross profit rate, discount rate, and other main parameters.
Regarding the implementation of the dual filing system, CSRC considers it to be an important measure to enhance the vitality of the securities audit market. The dual filing system requires securities service institutions such as accounting firms to report to CRSC and the Ministry of Finance for records. On the one hand, it will help to stretch the decisive role of the market mechanism. On the other hand, with the removal of access restrictions, it will strengthen the supervision during and after the event to consolidate the responsibilities of accounting firms and urge the improvement of audit quality.