Recently, Nanjing Sciyon Wisdom Technology Group Co.Ltd(002380) (002380. SZ) nearly 300 million yuan of bank deposits were “pledged” attracted market attention: listed companies and financial institutions insisted on their own words, audit institutions insisted on their diligence, and investors were confused.
On December 26, a senior accountant who served as the independent director of several A-share companies said in an interview with the reporter of Economic Information Daily that at present, monetary funds have become a frequent field of financial fraud of listed companies. The cases exposed in recent years, on the one hand, show that financial fraud and lax internal control, collusion and fraud inside and outside the company will eventually affect the safety and integrity of monetary funds of listed companies; On the other hand, it shows that the audit institutions still have insufficient technical means, insufficient big data analysis technology, insufficient penetration, too much emphasis on trusting customers to provide financial data, and insufficient independent professional judgment and risk awareness. It is expected that monetary capital audit will be paid more attention in the 2021 annual report audit, and some supplementary audit means will be added to prevent and avoid the practice risk of audit institutions.
It is worth noting that the above cases have attracted great attention from Jiangsu securities regulatory bureau. In order to prevent the audit risks related to monetary funds in securities business, the Bureau recently issued an accounting supervision communication, which puts forward specific requirements for the audit supervision of monetary funds of accounting firms. The special inspection of monetary funds previously carried out by the Bureau found that audit institutions have three major problems, such as “insufficient awareness of ‘gatekeeper’, lack of professionalism”, “insufficient ability awareness, professional competence to be improved”, “insufficient implementation of risk orientation and lax control of project review”.
insufficient awareness of “gatekeeper” and lack of professionalism
Jiangsu securities regulatory bureau said that as the “gatekeeper” of the capital market, the audit institution plays an irreplaceable role in promoting the high-quality development of listed companies. However, in practice, some audit institutions have different degrees of problems in risk awareness, professional suspicion and procedure implementation:
one is to “turn a deaf ear” to abnormal signs and fail to maintain appropriate professional suspicion. during the inspection, it was found that some certified public accountants failed to identify and assess audit risks according to the abnormal audit evidence obtained, and did not maintain due professional doubts about abnormal conditions. For example, a listed company has internal control defects such as the failure of the old and new management to handover according to the internal control requirements, and there is the fact that the funds are occupied by the former actual controller, but the certified public accountant does not assess the risk of capital occupation as the risk of material misstatement. An accounting firm found that the company’s new suppliers in the current period were listed as dishonest Executees and paid them large advance payments that did not comply with industry practices, but the certified public accountant simply approved the company’s explanation and did not obtain sufficient and appropriate audit evidence to verify the commercial rationality of the transaction. The above CPA’s failure to maintain professional suspicion has resulted in no non operational occupation of funds by the actual controller and its related parties of the company.
second, the audit procedure was “point to point”, and no further audit procedure was implemented to deal with the audit risk. auditing standards require certified public accountants to design and implement appropriate countermeasures according to the assessed risk of misstatement, but in practice, there are often cases of inadequate implementation of key audit procedures and lack of diligence. If an accounting firm is concerned that the company borrows large amounts of reserve funds through financial personnel and returns them frequently, the reasons explained by the company are not reasonable, and the accountant has not implemented further audit procedures to eliminate doubts. An accounting firm is concerned that the company has a large amount of time deposits in different places, which is inconsistent with the actual business needs, but it only implemented the conventional letter confirmation procedures and did not maintain professional sensitivity. An accounting firm was concerned about the illegal lending of large amounts of funds by important overseas subsidiaries of the audit object, but did not implement further audit procedures to properly identify the internal control defects and signs of loss of control in the management of subsidiaries. The inadequate implementation of the above audit procedures of Certified Public Accountants has led to their failure to obtain key audit evidence and make appropriate professional judgment.
third, independent audit “exists in name only” and is willing to be a “vent” of financial fraud. independence is the basis for certified public accountants to carry out audit business. However, in practice, factors such as the employment of audit institutions by listed companies, the linkage between certified public accountants’ remuneration and Project Commission, and the formation of interest alliance for providing audit services for the same object for a long time all form “pressure” on certified public accountants to maintain audit independence. For example, driven by interests, members of the project team of an audit institution colluded with listed companies to participate in letter fraud, which facilitated the financial fraud of listed companies, eventually led to audit failure and seriously damaged the reputation and image of the industry.
lack of ability awareness, professional competence needs to be improved
Jiangsu securities regulatory bureau pointed out that the audit business carried out by accounting firms is a highly professional work. With the increasing demands of market subjects, their fraud means are more hidden and innovative, while some certified public accountants are lack of professional competence, audit errors and even audit failure.
First, the learning and application of relevant professional standards are not in place. in recent years, accounting standards, audit standards, relevant interpretations and regulatory rules have been constantly revised and updated with the emergence of new business forms and new transaction modes in the market. However, some certified public accountants stay in the old habit and follow the audit work draft template over the years, which is difficult to break through the thinking inertia. When providing audit services for their long-term audit customers, they fail to properly implement the risk assessment procedures, understand the changes of the auditee and its environment and take countermeasures.
the second is the lack of due knowledge of financial products. during the inspection, it was found that some listed companies used the “financial innovation” projects of financial institutions to transfer interests for the actual controllers and their related parties. Some auditors lack understanding of relevant financial knowledge and financial products, resulting in failure to identify the risk of material misstatement. during the inspection of the certificate of deposit, a certified public accountant is concerned that the company has not retained the original certificate of account opening, and does not understand that if the original certificate of account opening is kept in the bank, it indicates that the certificate of deposit is likely to be pledged. the CPA’s behavior directly led to the failure to find the fact that the certificate of deposit was pledged.
third, the new means of fraud was not known in time, and the implementation of basic audit procedures was not in place. some accounting firms do not pay attention to the letter procedure and the control of the letter process is not in place. if the auditors of an accounting firm only confirmed the bank account, bank name, bank address, etc. in the process of checking the letter information, they did not check the bank contact person and contact information provided by the auditee with the bank’s public information. the CPA’s neglect of control led to the failure to find the misstatement of monetary funds.
Jiangsu securities regulatory bureau pointed out that the project quality control review is not only the guarantee of audit quality, but also the last barrier to prevent audit failure. However, in practice, there are often problems such as weak awareness of risk orientation and low quality of review. The quality review of some firms is a mere formality. The compound staff did not find that the basic audit procedures of the project team were not performed in place, did not pay full attention to the above risks or abnormalities, did not focus on the field of major misstatement risk for in-depth review, and did not control the last pass of audit practice quality.
be alert to four abnormal signs and maintain due professional suspicion
Audit institutions are not only the “gatekeeper” of the capital market, but also the “whistle blower” of capital market risk early warning.
Jiangsu securities regulatory bureau pointed out that audit institutions should carry out risk assessment in combination with the company’s business conditions. In the context of the integration of industry and finance, audit institutions need to strengthen their understanding of the industry and business of the auditee, carry out industry research and training when necessary, understand the supply chain and industrial chain, grasp the basic situation of the auditee in the industry, implement the risk-oriented audit principle from top to bottom from the whole business level, and do a good job in planned audit and risk assessment. Understand the auditee and its environment from the aspects of the company’s business characteristics, capital situation, main capital sources, use of surplus funds, objectives and preferences for purchasing financial products, and consider monetary funds as a high-risk field of audit; Considering that monetary capital has become a frequent field of financial fraud of listed companies, the audit institution shall appoint experienced project team members to be responsible for the audit work.
At the same time, certified public accountants should always maintain their sensitivity and ability to insight into risks, and should maintain due professional doubt about the risk signs they pay attention to.
First, we should pay attention to whether there are abnormalities in the controlling shareholders or actual controllers of the audited entity, such as falling into negative public opinion, facing a large number of lawsuits, having large capital needs, etc.
Second, pay attention to whether the overall environment of the audited entity is abnormal, such as frequent exchange, sudden exchange, resignation of key management personnel, etc.
Third, we should pay attention to whether there are abnormalities in the audited entity’s financial data, such as large amount of monetary capital stock exceeding a reasonable scale, monetary capital “occurred during the period and returned at the end of the period”, large amount of deposits in other places, large amount of money return, significant increase in advance payment, large amount of bill settlement, etc.
Fourth, we should pay attention to whether the audited entity has complex or unconventional transactions, such as capital pool business, purchase of innovative products of large financial institutions, complex financial management and derivative financial contracts, signing purchase and sales contracts without commercial rationality, etc.
maintain effective control over the whole process of bank correspondence and strengthen business knowledge learning
Jiangsu securities regulatory bureau pointed out that certified public accountants should be diligent and responsible, implement audit procedures according to regulations and obtain sufficient and appropriate audit evidence. For important audit procedures such as letters and inspections, the Bureau reminded the need to pay further attention to maintaining effective control over the whole process of bank letters and implementing necessary analysis and inspection procedures.
The Bureau requires that no matter whether the firm has established a confirmation center or not, during the implementation of bank confirmation, certified public accountants should maintain control over the whole process of bank confirmation, including determining the information to be confirmed or filled in, selecting appropriate respondents, designing confirmation, issuing confirmation and following up.
First, we should ensure effective control over sending letters. auditing standards do not prohibit the follow-up procedure, However, the answer to relevant questions stipulates that “if the certified public accountant needs to be accompanied by the employees of the auditee when following the letter, the certified public accountant needs to ensure that the control of the confirmation letter is maintained in the whole process, observe the field site of the letter and the whole process of verification by the auditee, and be alert to the risk of collusion between the auditee and the auditee.” Considering that it is difficult for the auditee to effectively control the confirmation process by accompanying letters, it is recommended to send letters by mail as far as possible, and it is not recommended to send confirmation letters by mail at the audit site, but by accountants in the firm.
the second is to confirm the sending information. operation guidelines attached to the notice on further standardizing bank letters and replies (CK [2020] No. 12) “A banking financial institution shall publish on its official website the departments or outlets handling the reply under various letter methods and their contact information, such as the office address and materials required for accepting the letter, the address, contact person and contact information for accepting the mail letter, and the specific method for accepting the digital letter, etc.”. The Department that accepts the bank letter business publicized by the bank is generally the public department, and the contact number is fixed line. In practice, it is recommended that the accountant mail the confirmation letter according to the confirmation contact information published on the bank’s official website, avoid sending confirmation letters according to the address, contact person and contact information provided by the auditee, and maintain professional doubt about the contact information of the bank confirmation letter provided by the auditee as an individual and the contact information as a personal mobile phone number.
the third is to verify the reliability of the reply. for the reply information to be verified by the accountant, in addition to whether the confirmation letter is the original sent, whether it is sent back to the firm directly by the bank, and whether the sender and address of the reply record are consistent with that at the time of sending the letter, the information displayed in the received confirmation letter shall also be verified. If the validity of the seal used in the reply is checked and the accountant has doubts about the seal after receiving the reply, he shall contact the bank; Check the signatures and seals of the handling person and the reviewer. Generally, the handling process and the review and signature of the competent person shall be reflected in the bank’s internal reply operation records. The accountant shall check the signatures and seals of the two persons to confirm whether they comply with the principle of separation of incompatible duties.
Jiangsu securities regulatory bureau pointed out that in practice, there are illegal acts such as invisible endorsement with the help of commercial bills to realize the occupation of major shareholders’ funds and financial fraud, and the concealment is strong. During the audit, attention should be paid to whether there is a third party using the credit line of the listed company for financing, which does not show the use of the credit in the credit investigation report of the listed company. The first suggestion is to check the bank’s credit approval to the company, and check whether the relevant businesses agree to provide guarantee, undertake balance supplement and other credit enhancement measures; Second, incorporate the bank credit and use into the letter of credit, and add the content of “commercial acceptance bill issued by the company but not accepted” in the letter of credit; Third, obtain the bill issuing records of the company, observe the bill information issued by the company’s online banking, and check whether there are bills that are not recorded in the account.
It is worth noting that for the audit of monetary funds, the question answer No. 12 of the audit standards issued by the China injection Association and the accounting supervision risk prompt No. 9 issued by the CSRC all put forward specific practice requirements. Jiangsu Securities Regulatory Bureau requires all accounting firms to strengthen learning and form their own monetary capital audit operation guidelines at the overall level of the firm in combination with the actual practice. At the same time, pay attention to market dynamics, collect market cases, carry out study and discussion, and strengthen employee training. The training content is not limited to professional knowledge of accounting, audit and finance, but also related to special industries with frequent risks. The accounting firm shall strengthen risk awareness training and warning education for employees, explain relevant regulatory policies and warning red lines, establish a long-term mechanism for internal and external supervision, and strengthen employees’ normative awareness and risk awareness.
(economic information daily)
