Since 2019, the CSRC has investigated and dealt with about 80 illegal cases of intermediaries, involving 24 accounting firms. Among them, in 2021, the CSRC filed and investigated 39 illegal cases of intermediaries according to law, more than doubling year-on-year.
One year after the implementation of the new delisting rules, A-Shares will be the first delisting companies under the fresh rules, and the capital market will also open a new chapter of “survival of the fittest”. Data show that up to now, there are 102 companies in Shenzhen and Shanghai in the delisting risk warning state. However, individual listed companies “wear new shoes and follow the old road”, constantly renovating the “shell protection” trick in an attempt to avoid delisting.
Facing the new financial technology of “shell protection”, how to give appropriate audit opinions will not only test the professional ability of accountants, but also the professional determination of audit institutions. The relevant person in charge of Shenzhen Stock Exchange said that under the background of the continuous improvement of the three-dimensional accountability system for illegal acts in the capital market and the significant increase in the cost of violations, audit institutions need to abide by the original intention and moral bottom line of practice, and effectively play the role of “gatekeeper” to promote the high-quality development of the capital market.
“shell protection” direction turns to revenue management
After consulting the recent regulatory letters of Shenzhen Stock Exchange, the reporter found that a new phenomenon appeared in the “shell protection” of sudden profit making this year – the “shell protection” direction of some companies changed from earnings management to revenue management, blindly expanding the scale of revenue but ignoring profits.
The new delisting regulations increase the combination index of operating income and net profit, which aims to provide “recovery” or “transformation” opportunities for companies with short-term downturn in the industry and difficulties in their own operation. However, some companies try to “exploit loopholes” through revenue management.
For example, Lvjing Holding Co.Ltd(000502) in the first three quarters of 2021, the cumulative revenue was 109 million yuan, with a year-on-year increase of 797.03%, but the profit decreased by 28.54%. With regard to the reasons for the deviation between operating income and net profit changes, the company said in reply to the letter of concern of Shenzhen stock exchange that although the subsidiary Shenzhen Hongyi added 73.8265 million yuan of business income from mechanical and electrical installation projects in the third quarter, the net profit was still negative due to the low gross profit margin, which could not cover the period expenses of the company, so the net profit was still negative in the case of significant growth in revenue.
It is worth noting that Lvjing Holding Co.Ltd(000502) in previous years, its main business was real estate. After acquiring 100% equity of Shenzhen Hongyi in cash of 380000 Yuan in March 2021, it added mechanical and electrical installation engineering business. Strangely, Shenzhen Hongyi, established in September 2020, has signed electromechanical installation contracts with a total amount of about 180 million yuan with many customers since the second half of 2021. A senior accountant pointed out that the authenticity of the sudden increase in operating revenue in the short term and whether it meets the conditions for revenue recognition need to be studied.
Accounting practitioners said that the new delisting regulations block the sudden profit creation, and make it clear that the business income that has nothing to do with the main business or does not have commercial substance should be deducted when calculating the corresponding delisting indicators. Whether the above companies can explain that the new engineering installation business has formed a “stable business model”, which not only requires the annual audit institution to take the professional responsibility and strengthen the substantive judgment in combination with the company’s development strategy, management intention, business model, supplier or customer stability, but also requires the supervision of “golden eyes” to carefully screen and prompt risks.
debt restructuring “shell protection” attracted attention
Some try to “increase their net assets” by exempting them from debt. According to incomplete statistics, more than 30 companies in Shenzhen and Shanghai issued debt restructuring announcements in the fourth quarter of 2021, and most of these companies had negative net assets or net profits in the first three quarters, which may touch the delisting index, and their motives are clear.
If Dynavolt Renewable Energy Technology (Henan) Co.Ltd(002684) disclosed that it received a debt exemption notice involving 12 creditors totaling RMB 3.404 billion on or before December 31, 2021; Jiangxi Firstar Panel Technology Co.Ltd(300256) disclosed in December 2021 that the creditor Huisheng investment and Pingxiang fantike exempted the company’s debt by 2.542 billion yuan; Henan Kedi Dairy Co.Ltd(002770) disclosed in December 2021 that it would offset the fund occupation of Kedi group by an equal amount of 920 million yuan in the form of debt for debt.
According to the above accountants, debt forgiveness and debt repayment are common ways of debt restructuring, but the key lies in whether they are “true exemption” and “true debt repayment”. Individual listed companies claim that “unilateral, unconditional, irrevocable and irrevocable exemption will not require the company and its subsidiaries to assume or perform relevant responsibilities or obligations in any way after Exemption”, which is contrary to the normal business logic, and its debt restructuring motivation and authenticity need to be paid special attention to.
Regulators have paid attention to this situation. For example, the Dynavolt Renewable Energy Technology (Henan) Co.Ltd(002684) debt exemption announcement did not disclose the signing time and specific contents of the exemption agreement. Shenzhen stock exchange sent five letters of concern asking about the authenticity of the agreement, the true identity of the creditor, the accuracy of the amount of creditor’s rights and debts, whether there is a “drawer agreement”, whether the relevant parties have fulfilled the relevant review procedures, etc. Up to now, Dynavolt Renewable Energy Technology (Henan) Co.Ltd(002684) has not fully replied to the letter and said that it has not obtained the complete information of the creditor.
change the employment of the new Institute to avoid “non-standard”
Some high-risk companies saw that “showing financial skills” was not feasible, so they simply hired a new annual audit accounting institution in an attempt to “make an issue” in the audit opinion.
In December 2021, Global Top E-Commerce Co.Ltd(002640) disclosed the audit report on the elimination of “non-standard opinions” in 2020 issued by Hexin certified public accountants, and corrected the accounting errors in the financial statements in 2020. According to the announcement, the subsidiary global Tesco falsely increased its inventory by 4.424 billion yuan in 2020 and previous years, and there were accounting errors in inventory, other receivables, provision for asset impairment, sales expenses and other accounting subjects in 2020 and previous years. However, according to the audit reports of the company in previous years, Zhongxi certified public accountants only issued an unqualified opinion on the annual report of the company in 2020. Previously, it issued an unqualified opinion on the annual report of the company for many consecutive years.
The above accountants believe that whether the club has really been diligent and responsible in previous years, whether the accounting errors disclosed by the company are complete and meet the conditions for the elimination of “non-standard opinions”, these questions need to be verified and verified one by one by the new annual audit accounting firm of the company, and its audit opinion is very important for whether the company is delisted.
Since last year, the central office and the State Council office have issued the opinions on strictly cracking down on illegal securities activities according to law, and the Supreme Court has issued several provisions on the trial of civil compensation cases of misrepresentation infringement in the securities market, which has greatly increased the cost of securities violations. According to the data, since 2019, the CSRC has investigated and dealt with about 80 illegal cases of intermediaries, involving 24 accounting firms. Among them, in 2021, the CSRC filed and investigated 39 illegal cases of intermediaries according to law, more than doubling year-on-year.
It can be predicted that the “gunpowder smell” between delisting supervision and the company’s “shell protection” war will be stronger this year. The end of January was the deadline for the disclosure of performance forecast, and the risks of some companies were gradually exposed. The exchange rushed to attack the suspected “shell protection” companies. The relevant person in charge of the Shenzhen Stock Exchange said that before the Spring Festival holiday, the Shenzhen Stock Exchange had issued a total of 58 letters of concern to companies with uncertain sustainable operation ability such as Shenzhen Hemei Group Co.Ltd(002356) and companies with doubts about income deduction such as Xinjiang Tianshan Animal Husbandry Bio-Engineering Co.Ltd(300313) .
The above accountants pointed out that as an important “gatekeeper” of the capital market, accounting firms are a strong shield to maintain the good ecology of the capital market. If accountants dare not light a sword against illegal “shell” companies, or even are bought by money, they will not only desecrate the identity of the “gatekeeper” of the market and lose their professional credit, but also lose more than pay for the losses due to the accountability of violations.
