Entering the annual report disclosure season, the change of audit institutions of listed companies has become a perennial “routine dish”.
According to the keyword statistics of the securities times, from December 1, 2021 to February 28, 2022, a total of 110 listed companies (including one B-share company) plan to change the audit institution in 2021, with a downward trend year-on-year. Among them, 90 listed companies with a market value of less than 10 billion have become the main body of exchange, accounting for more than 80%.
However, in the two years since the implementation of the new securities law, with the upgrading of supervision, the Audit Game between listed companies and accounting firms is constantly upgrading.
The reporter of the Securities Times noted that on the one hand, traditional head audit institutions are more active in screening customers, even talking about audit pain points, or actively “breaking up” with listed companies; On the other hand, the newly filed audit institutions solicited a large number of customers, and the novice “gatekeepers” of the capital market stepped into the battle intensively, which aroused great concern of the supervision.
small and medium-sized market capitalization companies dominate the “exchange”
During the disclosure of the annual report in 2021, listed companies set off a wave of “exchange” again. Usually, audit institutions will be stationed in listed companies before the end of the year to carry out pre audit. After that, listed companies generally do not easily change the annual report audit institution.
The person in charge of a four major accounting firms told the securities times that before the disclosure of the annual report, the reason for the “exchange” of listed companies is usually that the auditors and the company have not reached an agreed audit opinion; “It is common for A-share companies to change their audit institutions, while there are few changes in Hong Kong stocks. It is usually worried that frequent changes of auditors will affect the market’s confidence in the company”.
Liu Zhigeng, a well-known financial and tax audit expert and senior certified public accountant, also told reporters that the accounting firm was very cautious about the potential risks of the listed company, and the listed company could not accept the adjustment opinions or suggestions of the accounting firm, or non unqualified audit opinions, so that the two sides could not reach an agreement and the final negotiation collapsed. This is the main reason why listed companies change accounting firms, especially in ST companies. Other common reasons include: Listed Companies in order to “buy” their own audit opinions; Price reduction competition among accounting firms; The optimization and adjustment of accounting firms to customers; The manpower and time arrangement of the accounting firm can not meet the needs of audit work.
Shanghai and Shenzhen stock exchanges also pay close attention to the exchange tide of listed companies. In the past three months, about 1 / 3 of the listed companies in the exchange have been inquired, especially the listed companies in the high-frequency exchange have been paid special attention, and both the listed companies and the audit institutions are required to explain whether the pre audit work has been carried out and whether there are major differences.
According to the Securities Audit Market Statistics released by the CSRC in recent years, 294 listed companies involved in exchange in 2018, 717 in 2019 and 398 in 2020. Among them, 2019 became the peak of exchange change, mainly because the former audit institutions were filed for investigation, accounting for more than half of the corresponding proportion. The other reasons include the flow of audit team personnel, the requirements of actual controllers of listed companies or the exchange in accordance with the rotation regulations of state-owned enterprises.
In contrast, the number of listed companies planning to change the audit institution in 2021 has a further downward trend.
According to the statistics of the keyword “change of accounting firm”, the reporter of the Securities Times found that from December 1, 2021 to February 28, 2022, a total of 109 A-share listed companies planned to change the audit institution of 2021. Among them, listed companies with a market value of less than 10 billion are the main body, accounting for more than 80%.
On the other hand, among the listed companies that disclosed the exchange, 26 were warned of risks and 34 issued non-standard audit opinions in their 2020 annual reports; In addition, among the above Exchange listed companies that have disclosed the performance forecast, 50 companies are expected to have a decline or loss in 2021, accounting for about 60%.
According to the statistics of the CSRC, among the exchange companies in 2020, 69 companies were issued with non-standard opinions, accounting for 17.3% of the total number of exchange companies, which is much higher than the overall proportion of non-standard opinions of listed companies (5.9%). Non-standard matters mainly involve problems such as doubts about continuous operation, occupation of funds of related parties and illegal guarantee, asset impairment, filing investigation, estimated liabilities, etc. In the inquiry letter involving exchange, Shanghai and Shenzhen stock exchanges also usually require listed companies to explain the elimination of non-standard opinions in the previous year.
Liu Zhigeng said that as the operating situation, process and results of Chinese listed companies are changing every year, there may be various new situations and problems, and the certified public accountants need to re analyze and judge these new situations and problems, which inevitably leads to the situation that the certified public accountants believe that the auditee needs to be adjusted, If the listed company does not agree to the adjustment, certified public accountants will issue non-standard opinions in order to prevent and reduce audit risks.
“However, whether it is an audit adjustment or a non unqualified opinion, it will have a certain or even greater impact or loss on the listed company, and the goal of the listed company is to obtain the most satisfactory audit opinion while ensuring that the audit adjustment has the least impact on itself and maximizes its interests.” Liu Zhigeng pointed out that under such circumstances, it is easy for the two sides to have different understandings or contradictions, and it is inevitable to have differences. If the talks fail, both sides may propose to terminate the business agreement.
The new delisting regulations issued at the end of 2020 further increased the “voice” of the audit report. In the regulations on financial delisting, the delisting risk warning company is added, and the audit opinion and other financial indicators are cross applied at the same time; In other risk warnings, the new internal control is issued with an opinion or negative opinion, losses for three consecutive years, and the audit report shows that the ability to continue as a going concern is in doubt.
However, for the A-share market, frequent exchange does not usually constitute the primary reference standard for investing in listed companies. People engaged in private investment told reporters: “listed companies such as the resignation of the chief financial officer, the change of audit institutions and the late financial report should be vigilant. However, if investors screen the investment targets too severely, they will have fewer investment opportunities and it is difficult to obtain excess returns.” In the long run, the implementation of supervision still depends on the specific implementation of delisting in the future.
game degree increased
The number of A-share companies replacing audit institutions in 2021 has a downward trend, but the degree of game between listed companies and audit institutions has increased significantly this round, the cases of “breaking up” proposed by audit institutions have increased significantly, and some audit institutions even have to terminate contracts with customers at the expense of breach of contract.
On January 6, 2022, Elefirst Science & Technology Co.Ltd(300356) announced that based on the actual situation of the audit workload and project scheduling of the financial report in 2021, Zhonghua certified public accountants proposed not to continue to serve as the company’s audit institution in 2021, and the company plans to appoint Shenzhen Jiu’An certified public accountants as the audit institution in 2021.
For the details of the changes, Elefirst Science & Technology Co.Ltd(300356) replied to the regulatory inquiry that Tucao Zhonghua had “make complaints about the change”: originally, at the shareholders’ meeting in 2020, the listed companies had already passed the reappointment of the China Council meeting. But on December 2021, 14, the party received a letter from Zhonghua, telling them that they would not continue to serve as the 2021 annual audit institution of the listed company.
In this regard, Elefirst Science & Technology Co.Ltd(300356) expressed the hope to continue to maintain cooperation and pledged to fully cooperate with the audit of the 2021 financial report of Zhonghua exchange; At the same time, it also said that from the perspective of contract performance, Zhonghua exchange may face corresponding risks caused by temporarily proposing not to act as the audit institution of Listed Companies in 2021.
However, after receiving the reply from the listed company, Zhonghua exchange still insisted on its opinion that it would not continue to serve as an audit institution. The reason given by Zhonghua is that based on the consideration of risk factors and working time arrangement, Zhonghua voluntarily proposes not to serve as the audit institution in 2021; In addition, in the audit process of previous years and the communication of changing the accounting firm this time, Zhonghua said that there were no unresolved disputes with the company.
The main reason why Zhonghua office issued a qualified audit report on the 2020 financial report of listed companies is that it is unable to judge the impact on the company’s financial statements caused by the problems such as the recoverability of funds occupied by the controlling shareholder of Elefirst Science & Technology Co.Ltd(300356) company Jiangsu Guangyi Investment Management Co., Ltd. and the accuracy of bad debt provision.
In addition to actively breaking up, audit institutions will also face the audit differences with listed companies.
Cedar Development Co.Ltd(002485) 1 disclosed on January 21 that it is planned to change the original audit institution of annual report of 2021 from zhongxinghua certified public accountants to Zhongxi certified public accountants. The reason is that Zhongxing Huasuo has different opinions on the judgment of the company’s main business and the recognition of the new regulations on revenue deduction, and the chief reviewer of the original project team has also changed. After friendly negotiation between the two sides, the company plans not to renew the employment of Zhongxing Huasuo, and the two sides break up amicably.
Specifically, in 2020, Cedar Development Co.Ltd(002485) supply chain business achieved an operating revenue of 512 million yuan, accounting for 33.57% of the operating revenue; From January to June 2021, the company’s supply chain business realized an operating revenue of 785 million yuan, accounting for 81.82% of the operating revenue. The listed company believes that the supply chain business has become one of the main businesses and accounts for the largest proportion of operating revenue, which should not belong to the revenue deduction identified in the revenue deduction guide. This judgment is that there are differences between the listed company and zhongxinghua. Previously, the Securities Times reported that the payment of some products of cedar trust was overdue, and the supply chain business related to its underlying assets was suspected of “idling” trade Cedar Development Co.Ltd(002485) the compliance of relevant supply chain businesses has also been inquired by regulators.
The differences between listed companies and audit institutions also spread to the costs involved in other businesses. For example, Xinjiang Machinery Research Institute Co.Ltd(300159) changed the original Lixin certified public accountants firm to Asia Pacific (Group) certified public accountants firm. One of the differences is that the listed company still owes 700000 yuan of service fees.
novice “gatekeeper” on stage
Under the background of game upgrading between listed companies and audit institutions, new business forms are also under construction. Since the quarter of the annual report, “one institute is difficult to hire” has repeatedly appeared. Xinjiang Yilu Wanyuan Industrial Investment Holding Co.Ltd(600145) and other listed companies have been urged by the exchange to appoint audit institutions in time for many times; On the other hand, a number of novice “gatekeepers” appeared in the list of companies changing audit institutions.
Hunan Tianrun Digital Entertainment & Cultural Media Co.Ltd(002113) announced on February 15 that it is proposed to appoint Hunan Rongxin Certified Public Accountants (general partnership) as the company’s annual audit accounting firm in 2021. Hunan Rongxin has just completed the filing of securities service business. Before that, the income of securities business was zero. On February 11, the CSRC announced the latest filing list of accounting firms engaged in securities service business, including four accounting firms such as Hunan Rongxin.
On March 1, 2020, the revised Securities Law was officially implemented, and the accounting firm engaged in securities services changed from administrative license to filing management, ending the securities business qualification license system. Since then, there has been a surge in filing audit institutions. Up to now, the number of accounting firms engaged in securities service business has expanded from 40 before filing to 84.
In the past two years since the implementation of the new regulations, with the reduction of the industry access threshold, more small and medium-sized firms have been activated. In the audit of the 2021 annual report of a shares, according to incomplete statistics by the reporter of the securities times, Hunan Rongxin, zhongruicheng certified public accountants, Pengsheng certified public accountants, xutai certified public accountants, Zhejiang Tianping certified public accountants, Shenzhen Jiu’An certified public accountants, Guangdong Heng’an certified public accountants, Guangdong Si Nong certified public accountants A number of audit institutions such as younitai Zhenqing made their debut. Among them, Unitech Zhenqing took over the audit business of Zjbc Information Technology Co.Ltd(000889) , Shenzhen Soling Industrial Co.Ltd(002766) and Xiamen Overseas Chinese Electronic Co.Ltd(600870) 3 single 2021 annual report at one go.
The reporter found that the A-share annual audit business of the above-mentioned small and medium-sized firms usually has two kinds of situations. One is the “transfer” of former audit institution members of listed companies. In order to maintain the consistency and continuity of audit work, they were transferred to a new office. For example, Hunan Tianrun Digital Entertainment & Cultural Media Co.Ltd(002113) said that the audit team of the former accounting firm joined the accounting firm to be changed. In order to ensure the continuity of the audit, it is proposed to change the audit institution of the financial statements of this year. According to the announcement, three members of the project team arranged by Hunan Rongxin participated in the annual review of Hunan Tianrun Digital Entertainment & Cultural Media Co.Ltd(002113) last year.
In addition, Shenzhen Liantronics Co.Ltd(300269) also employed Guangdong Heng’an certified public accountants for the same reason. The firm was established on March 3, 2021 and completed the filing of securities service accounting firm on November 30, 2021. More than two months after the appointment of Guangdong Heng’an certified public accountants, Shenzhen Liantronics Co.Ltd(300269) announced the change of the signing certified public accountant.
Second, when the original office abandons the audit business due to “its own reasons and the planning and arrangement of annual audit tasks”, the new office receives the order. However, under this type, most companies have high audit business risk. For example, for the Shenzhen Danbond Technology Co.Ltd(002618) , Huaxun Fangzhou Co.Ltd(000687) annual audit business undertaken by xutai certified public accountants, the type of audit opinion of the annual reports of the two companies in 2020 is “unable to express opinions”.
In addition, there are many new businesses that have changed hands. In September 2021, Shenzhen Soling Industrial Co.Ltd(002766) announced that considering the company’s business development and audit needs, the company plans to hire Shanghui accounting firm as the company’s audit institution in 2021. The reporter noted that last year, the type of audit opinion issued by Asia Pacific (Group) accounting firm for the company in 2020 was “qualified opinion”. On January 28 this year, Shenzhen Soling Industrial Co.Ltd(002766) again issued the exchange announcement, saying that due to the heavy audit task and personnel transfer at the meeting, after careful review of personnel and time arrangement, in order to ensure the audit quality, after full communication and negotiation with the meeting, both parties agreed to terminate the service agreement. At the same time, you Zhentai plans to hire you Zhentai.
“In fact, because the previous audit market has long been divided, the newly reported small and medium-sized accounting firms can only cooperate with listed companies that can’t find accounting firms, and these listed companies basically have all kinds of serious problems, such as the audit risk is very high, which was abandoned by the original accounting firm.” Liu Zhigeng said.
Lowering the threshold does not mean reducing the responsibility. The new securities law also significantly increases the illegal cost of audit failure. For accounting firms, securities service business is still a high-risk business. According to the CSRC, since 2019, a total of 24 illegal cases of accounting firms have been investigated and dealt with. In 2021, the CSRC filed 39 illegal cases of intermediaries according to law, more than double the same period in 2020, and transferred or notified the clues of 2 cases to the public security organ.
Liu Zhigeng believes that from the actual situation that the new securities law has been implemented for less than two years, it is really difficult for these small and medium-sized accounting firms to undertake “high-quality” listed companies. They often have a variety of left over or serious problems and are difficult to deal with. They are called “hot potato” in the industry. In fact, for these “hot potato”, the securities regulatory authorities have long been “caring”, which makes it even more difficult for relevant small and medium-sized firms.
As for the investment risks related to the listed companies that have been re employed by the new accounting firm, Fang lie, a financial expert, told reporters that usually the new accounting firm lacks understanding of the relevant companies and will be cautious once the company is found to have problems in the audit; Some companies have high counterfeiting skills. In addition to the old ones who know the root and the bottom, the new ones generally can’t see it in a short time, so they don’t necessarily explode in the short term.
According to the statistics of the CSRC, the proportion of non-standard reports issued by head accounting firms in 2020 was lower than that of other accounting firms. The latter issued 141 non-standard reports, accounting for 12.7%. From the perspective of customer risk structure, the customers of ST company of head accounting firm account for only 3.5%, and the customers of ST company of other accounting firms account for 10.9%, reflecting the trend of risk companies gathering to small and medium-sized accounting firms. Therefore, inexperienced novice “gatekeepers” need to be more fully prepared.
