According to the decision of Shenzhen Securities Regulatory Bureau on Issuing warning letters to Dahua Certified Public Accountants (special general partnership) and certified public accountants Hu Jinke, Shen Hongbo, Zhao Jun and Luo Jiyun (decision on administrative supervision measures (2022) No. 44), published on the website of Shenzhen regulatory bureau of China Securities Regulatory Commission, in accordance with the relevant provisions of the securities law of the people’s Republic of China, Shenzhen Securities Regulatory Bureau conducted a special inspection on the annual report audit projects of Shenzhen Sisheng Energy Co., Ltd. (hereinafter referred to as “Sisheng energy”, 832131) from 2018 to 2020 executed by Dahua Certified Public Accountants (special general partnership, hereinafter referred to as “Dahua certified public accountants”) and certified public accountants Hu Jinke, Shen Hongbo, Zhao Jun and Luo Jiyun. After investigation, the following problems exist:
I. failure to carefully assess the risk of material misstatement of monetary funds. The 2020 annual report of Sisheng energy disclosed that many bank accounts were frozen, and there were large and frequent capital exchanges with related parties and some non-financial institutions during the reporting period. The inspection found that “the company has the motivation to make false presentation of financial statements in order to meet the financing requirements” has been identified in the evaluation form of fraud risk factors of Dahua certified public accountants, but it has not carefully evaluated whether the fraud motivation leads to the risk of significant difference between the company’s financial statement level and recognition level in the risk assessment procedure, and considered whether it is a special risk. The above situation does not comply with the provisions of Articles 28 and 30 of the auditing standards for Chinese certified public accountants No. 1211 – identifying and assessing the risk of material misstatement by understanding the auditee and its environment.
II. Understanding internal control is a mere formality. The inspection found that Dahua certified public accountants’ understanding of the internal control of Sisheng energy in 2020 was a mere formality. First, the key control points related to audit were not identified. When understanding the internal control of the company, it is not recognized as the key control point whether the purchase receipt and sales issue documents are prepared and whether the sales are recorded in the correct accounting period. Second, understand the contradiction between internal control and audit conclusion. The “audit draft” and “payment record” of the company have not been checked and processed accurately, but the “audit draft” and “payment record” of the company have not been checked and processed accurately, and the contradiction between the “audit draft” and “payment record” of the company has not been solved. Third, the walkthrough test is not enough to support the conclusion that the internal control design and operation are effective. In the sales and collection cycle, the walkthrough test for the record of “approval and accurate record of bad debt write off” was only to “visit the manager of the finance department to confirm whether the balance of accounts receivable of the company has accrued bad debt reserves in accordance with the company’s financial policies”. Sufficient and appropriate audit evidence was not obtained for the approval control of bad debt write off, and the interview record of the manager of the finance department was not attached to the audit draft. Fourth, the business situation of the company recorded in the audit draft is inconsistent with the actual situation. If the names of the company’s general manager and cashier in the sales and collection cycle record are inconsistent with the actual employment situation of the company; The collection and distribution of manufacturing expenses recorded in the production and storage cycle are inconsistent with the actual situation of the company; There are also other audit project drafts copied directly without modification. The above situation is not in conformity with the provisions of Articles 15 and 16 of the auditing standards for Chinese certified public accountants No. 1211 – identifying and assessing the risk of material misstatement by understanding the audited entity and its environment and Articles 10, 11 and 15 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
III. The implementation of control test is not in place. The inspection found that Dahua certified public accountants failed to implement the internal control test of Sisheng energy in 2020. First, it failed to obtain sufficient and appropriate audit evidence for the effectiveness of the internal control of sales and collection cycle. Identify the operating revenue as the risk of material misstatement at the recognition level. When performing the control test on the sales and collection cycle, only the two control points that the contract has been approved and both parties have sealed and confirmed the contract terms are tested. Without testing the key control points such as sales delivery, whether the accounting period is correct and accounts receivable collection, the conclusion of the operation effectiveness of the sales and collection cycle control is drawn, Failure to obtain sufficient and appropriate audit evidence for the effectiveness of the control operation related to this cycle. Second, the audit evidence obtained from the control test is insufficient to support the audit conclusion. The date of the receipt attached to the March 2020 voucher extracted from the procurement and payment cycle control test is December 2019, but the company has not paid attention to the cross period confirmation of procurement, and it is still concluded that the control operation of “transaction records of purchased goods in an appropriate period” is effective. Third, the sample size of the implementation control test of the internal control of monetary funds is insufficient. For example, in the internal control test of checking the consistency of bank statements, bank deposit journals and general ledger, only one sample size was taken to draw the conclusion that “the check is consistent and the control operation is effective”. Insufficient sample size was not taken to reduce the sampling risk to an acceptable low level. The above situation does not comply with the provisions of Articles 8, 9 and 10 of the auditing standards for Chinese certified public accountants No. 1231 – Countermeasures against the risk of material misstatement assessed, Articles 16 and 17 of the auditing standards for Chinese certified public accountants No. 1314 – audit sampling, and Article 14 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
IV. failing to maintain due professional suspicion of the company’s fraud. The inspection of the company found that the account of xsheng energy China Merchants Bank Co.Ltd(600036) 755920127210904 received 50 million yuan transferred from Changde DINGHE Kechuang industrial investment fund partnership (limited partnership) in June 2018. In September 2018, the company transferred the 50 million yuan to the related party Shenzhen Shengsheng equity investment enterprise (limited partnership), and the company did not account for the 50 million yuan transferred in and out; In November 2018, the company will directly write off the accounts receivable of five companies from Shengsheng investment current account of 4.5 million yuan, without recording other accounts payable to related parties; Without actually receiving funds, the company falsely recorded the receipt of 30 million yuan and 20 million yuan of investment funds in the financial system in November 2020 and January 2021, and falsely offset the accounts payable and other accounts payable. The above situation led to the false disclosure of non operating capital transactions of related parties in the company’s annual reports from 2018 to 2020.
The inspection found that during the audit in 2018 and 2020, Dahua certified public accountants office did not maintain due professional doubts about some abnormal clues, implemented further audit procedures, and found no relevant fraud of the company. First, according to the 2018 Monetary Fund draft of Sisheng energy, the amount of debit and credit of China Merchants Bank Co.Ltd(600036) 755920127210904 account in this period is 500 yuan and 500 yuan respectively. The summary sheet of correspondence records “no reply, bank statement has been checked”. When checking the bank statement of the account, the due professional suspicion was not maintained, and attention was not paid to the abnormal situation that the bank account received the equity investment fund of 50 million yuan transferred by DINGHE Kechuang in June 2018 and transferred the 50 million yuan to Shengsheng investment in September 2018. No fraud was found that the company did not carry out accounting treatment for the transfer in and transfer out of 50 million yuan in 2018. Second, the Bank Of Communications Co.Ltd(601328) 443066199013 Jiangxi Huangshanghuang Group Food Co.Ltd(002695) 791 account of Sisheng energy was opened in November 2020. In the detailed statement of monetary funds, the amount of debit and credit of this account in 2020 was 30.015 million yuan and 30.006 million yuan respectively, which was the largest bank account of Sisheng energy in the current period.
Dahua certified public accountants obtained the bank statement of the account in 2020. The statement shows that the amount of debit and credit during the reporting period of the account is 453 yuan and 135016 yuan respectively, which is significantly different from the amount recorded in the monetary capital statement. The company did not maintain due professional suspicion, did not conduct two-way inspection on the large amount of revenue and expenditure of the bank account, and did not find the fraud of the company’s fictitious monetary capital transaction. Third, during the detailed test of the bank deposit of Sisheng energy in 2020, the company collected two vouchers for the investment payment of 30 million yuan from DINGHE Kechuang and other payables for the repayment of 212488 million yuan from Shengsheng investment, the audit draft records have checked the relevant bookkeeping vouchers and bank receipts, and the scanned copies of the above two bank receipts have been retained in the audit draft of investment income and other payables. The original vouchers of the above large amount receipts and expenditures of monetary funds were not checked, the scanned copy of the bank receipt retained in the audit manuscript was not found to be forged, and the fraud of the company’s fictitious monetary capital transactions was not found. Fourth, when carrying out the detailed test on the accounts receivable of Sisheng energy in 2018, we extracted the company’s vouchers No. 76, 183 and 182 on November 18, 2018. We received the accounts receivable of three companies respectively. The audit draft records have checked the bank receipts, and the names of the collection units are consistent with those of the sales customers, and there are no abnormalities. However, the payback Party of the above three vouchers is Shengsheng investment, a related party of the company, and there is no entrusted payment agreement attached to the vouchers. The detailed test of accounts receivable of Sisheng energy was not carried out in place, and there was no professional doubt about the inconsistency between the collection unit and the name of accounts receivable customers.
The above situation does not comply with the provisions of Article 28 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for audit work of certified public accountants, Article 13 of the auditing standards for Chinese certified public accountants No. 1141 – responsibilities related to fraud in the audit of financial statements, and articles 10, 11 and 15 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
V. failure to properly judge whether part of the company’s accounting treatment complies with the provisions of the accounting standards for business enterprises. In 2020, the parent company transferred 34.29 million yuan of equity of Hunan Keding new energy Co., Ltd. to Hunan Keding new energy Co., Ltd. When the company has repurchase obligations for equity transfer in relevant agreements and is expected to trigger repurchase terms, the above transactions are measured as equity instruments, which does not comply with the provisions of Article 4 of the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments. In 2019 and 2020, the company will record the government subsidies related to assets of 5 million yuan received into the current profit and loss at one time; On the ground of “two exemptions and three reductions by half”, the plant rent in 2019 and 2020 is not accrued and amortized, which does not comply with the accounting standards for business enterprises. The inspection found that Dahua certified public accountants office did not make appropriate professional judgment on whether the above accounting treatment of the company complies with the provisions of the accounting standards for business enterprises when auditing the financial statements of Sisheng energy in 2019 and 2020. The above situation does not comply with the relevant provisions of Article 29 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for audit work of certified public accountants.
Vi. the implementation of monetary fund audit procedures is not in place. The inspection found that Dahua certified public accountants did not obtain sufficient and appropriate audit evidence for the integrity of bank accounts when auditing the 2020 annual report of Sisheng energy. Only the bank account details exported from the company’s financial system were checked to the bank account opening list, the integrity of the company’s bank account was not inversely checked from the bank account opening list, the abnormality that the three bank accounts listed in the bank account opening list were not recorded in the company’s Monetary Fund details was not noticed, and further audit procedures were not implemented. In addition, the checking of the account list and account opening information of Sisheng energy bank is a mere formality. In the “checklist of bank account list and account opening information”, it is recorded that all bank accounts are in normal use, but the account opening list shows that some bank accounts of the company have been cancelled, and the draft record is inconsistent with the actual situation of the company. The above situation does not comply with the provisions of Article 10 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
VII. The implementation of letter confirmation procedures is not in place. First, the due control over the confirmation procedure was not maintained. During the audit of Sisheng energy in 2020, Dahua certified public accountants office implemented the letter confirmation procedure for the accounts receivable of 22 customers in total of the parent and subsidiary companies. It was concerned that the sending address of 13 customers was inconsistent with the registered address, and the reason for the inconsistent address of 7 of them was that “the registered address was inconsistent with the office address, and the sending address was consistent with the office address”, and did not obtain sufficient and appropriate audit evidence for the accuracy of the sending address; It did not maintain due professional doubts about some abnormal situations, such as the sending address of individual letters is hotels and apartments, the sending address of Shenzhen Tianji Technology Investment Co., Ltd. is consistent with that of Shenzhen Desheng Investment Co., Ltd., the reply address of Shenzhen yiben electronic digital technology Co., Ltd. is inconsistent with that of the sending address, and the express receipt of accounts receivable Reply of Dongguan Yuna Electronics Co., Ltd. is addressed to Wu Xiaoxiong, board secretary of Sisheng energy, Implement further audit procedures to investigate the causes of anomalies. Second, the confirmation procedures were not implemented for all bank accounts, and the confirmation information in the bank confirmation letter was incomplete. During the 2020 audit of Sisheng energy, the letter confirmation procedure was not implemented for the two accounts with zero amount and balance, and the reasons for the lack of letter confirmation were not recorded in the audit draft; In some bank confirmation letters, the bank is only required to confirm and reply to the “bank deposit” information. For other information in the confirmation letter, such as bank loan, current account cancellation, amount incurred, etc., it is indicated with “no letter of confirmation”. Third, the confirmation letter that may have doubts about the reliability did not obtain further audit evidence. Knowing that there are serious differences and lawsuits between Tianji technology and Sisheng energy on accounts receivable, we did not maintain due professional doubts about the abnormal situations that do not conform to the general business logic, such as the receipt of Tianji technology’s confirmation letter of accounts receivable during the 2020 annual audit, carefully judge the reliability of the above confirmation letter, and obtain further audit evidence to eliminate these doubts. Fourth, the implementation of alternative procedures is not in place. If the substitution test is not carried out for individual unresponsive current accounts; When performing the substitution test on the accounts receivable of individual customers, some delivery notes, Inspection Notes, sales invoices and other information were not filled in, and the relevant reasons were not recorded, so the execution of the substitution test was insufficient; Some banks replied with credit certificates, only confirming the ending balance of bank accounts, and did not implement alternative procedures for information such as whether the funds not confirmed in the reply were limited; For 7 bank accounts that did not reply, only check whether the balance of the bank statement is consistent with the balance of the company’s bank subsidiary ledger, and the substitution procedure is insufficient. Fifth, no further audit procedures were carried out for the non conformance of the reply. The confirmation letter of Hunan Sisheng Bank Of Communications Co.Ltd(601328) Changde railway station sub branch listed that the account was frozen, and the bank reply showed that the account was not frozen. The non conformance was not recorded in the manuscript, and no further audit procedures were taken to investigate the causes of the non conformance. Sixth, there are many errors in the preparation of letter proof manuscript. For example, there are some problems in the “summary of bank deposits and other monetary capital letters”, such as the wrong filling of some bank account numbers, and the index number does not match the index number in the upper right corner of the bank confirmation letter.
The above circumstances are not in conformity with Article 28 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for auditing work of certified public accountants, articles 12, 14, 17, 19 and 21 of the auditing standards for Chinese certified public accountants No. 1312 – correspondence, and Article 10 of the auditing standards for Chinese certified public accountants No. 1131 – draft of auditing work Article 13.?
VIII. The implementation of income audit procedures is not in place. First, the analytical procedure of income is a mere formality.
In 2020, the cell revenue of the parent company of Sisheng energy decreased by 56% year-on-year. In the audit statement of “business / product sales analysis form”, it is recorded that “the sales of electric cells in this period has increased because the company has made some trade in this period, so the sales volume and sales volume of electric cells have increased partially”. The analytical statement is inconsistent with the actual situation of the company. Second, the audit evidence without doubt about its reliability should maintain due professional doubt. When implementing the audit procedures for the operating income of Sisheng energy in 2020, it obtained some sales contracts and orders of the company, but did not maintain due professional doubt. It paid due attention to the obvious inconsistency of the public regulations of Lanhai Jiahe on the two orders signed by Sisheng energy and Shenzhen Lanhai Jiahe Electronic Technology Co., Ltd., and implemented further audit procedures. The above situation is not in conformity with the provisions of Article 28 of China’s auditing standards for certified public accountants No. 1101 – overall objectives and basic requirements for audit work of certified public accountants, Article 5 of China’s auditing standards for certified public accountants No. 1313 – analysis procedures and Article 15 of China’s auditing standards for certified public accountants No. 1301 – audit evidence.
IX. audit procedures for credit impairment losses are not implemented in place. The inspection found that during the audit in 2020, Dahua certified public accountants identified the credit impairment loss as the risk of major misstatement at the recognized level, and only accrued the credit impairment loss on the balance of all accounts receivable of the company according to the aging method. After knowing that Sisheng energy had serious differences and litigation with tiankey technology on product quality problems in 2020, Shenzhen yiben electronic digital technology Co., Ltd When Guizhou bainawei Intelligent Technology Co., Ltd. has no executable property, it did not analyze the recoverability of the above single major accounts receivable based on the repayment ability of specific customers, did not properly evaluate the rationality of the company’s withdrawing credit impairment loss according to the aging method for accounts receivable with obvious signs of impairment, and the audit procedures for credit impairment loss were not implemented in place. The above circumstances are not in conformity with the provisions of Articles 18 and 23 of the auditing standards for Chinese certified public accountants No. 1321 – audit accounting estimates (including fair value accounting estimates) and related disclosures.
X. The audit procedures for asset impairment losses are not implemented in place. In 2020, Dahua Shengsi certified public accountants found that the asset impairment procedures were not in place. For example, for polymer production equipment with signs of impairment, the rationality of not conducting impairment test on fixed assets is not properly evaluated; During the impairment test of inventory, the net realizable value was not determined according to the holding purpose, and the audit procedures for inventory impairment were not implemented in place. The above circumstances are not in conformity with the provisions of Articles 18 and 23 of the auditing standards for Chinese certified public accountants No. 1321 – audit accounting estimates (including fair value accounting estimates) and related disclosures.
Xi. The implementation of inventory supervision procedures is not in place. The inspection found that Dahua certified public accountants failed to implement the inventory supervision procedures for the inventory, and did not implement further audit procedures for the inconsistency between the inventory supervision details and the inventory supervision result summary, and the inventory count quantity and book quantity to investigate the reasons for the difference. The above circumstances are not in conformity with the provisions of Articles 10, 13 and 15 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
XII. Lack of independence of project manager. The inspection found that Luo Jiyun, the auditor of Dahua certified public accountants, as the on-site person in charge of the audit project of the annual report of Sisheng energy from 2018 to 2020, violated the independence requirements of the code of professional ethics and had economic interests with the audited unit. For example, during the audit of the 2020 annual report, the deputy general manager of Sisheng energy transferred 200000 yuan to Luo Jiyun through his personal bank account. The summary of the bank flow is “loan”. Up to now, the 200000 yuan has not been returned; In September 2018, Sisheng energy paid 50000 yuan to Luo Jiyun’s personal bank account, and the invoice shows the service fee. The above situation does not comply with the provisions of Article 27 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for audit work of certified public accountants and Article 67 of the code of professional ethics for Chinese certified public accountants No. 4 – Requirements for independence of audit and review business.
XIII. Review of project quality control. The above-mentioned obvious implementation is not in place in the risk assessment procedures of the energy audit project and the response procedures for identifying the risk of major misstatement at different levels, but the project manager, project partner and project quality control reviewer did not find any audit problems in the quality control review of the project, and the implementation of the quality review procedures is not in place. The above circumstances do not comply with the relevant provisions of articles 30, 31 and 34 of the auditing standards for Chinese certified public accountants No. 1121 – quality control over the audit of financial statements.
Shenzhen Securities Regulatory Bureau found that the above-mentioned acts did not meet the relevant requirements of the practice standards for Chinese certified public accountants and violated the provisions of Article 6 of the measures for the supervision and administration of unlisted public companies (CSRC Order No. 161) and paragraph 1 of Article 44 of the measures for the administration of information disclosure of unlisted public companies (CSRC Order No. 162). According to Article 83 of the measures for the supervision and administration of unlisted public companies and Article 51 of the measures for the administration of information disclosure of unlisted public companies, Shenzhen Securities Regulatory Bureau decided to take regulatory measures to issue warning letters to Hu Jinke, Shen Hongbo, Zhao Jun, certified public accountants and project manager Luo Jiyun of Dahua Institute of certified public accountants and Sisheng energy.
According to the official website, Dahua certified public accountants, founded in 1985, is one of the largest large accounting firms in China and the first batch of firms approved to engage in H-share listing audit qualification in China. From 2011 to 2020, in the information on the top 100 comprehensive evaluation of accounting firms published by the China Institute of certified public accountants, Dahua’s business income ranked among the top 10 in the industry for ten consecutive years, including the eighth in the industry in 20162018 and 2020, Domestic capital is the fourth.
The reporter of China Economic Net found that on March 13, 2015, Sisheng energy was listed on the new third board and hosted the securities company Anxin Securities Co., Ltd.
Article 9 of the guidelines for the continuous supervision of the sponsoring securities companies of the national share transfer system for small and medium-sized enterprises (for Trial Implementation) stipulates that the sponsoring securities companies shall supervise the listed companies to establish, improve and effectively implement the internal management system, including but not limited to the accounting system, financial management and risk control systems, as well as the procedures and rules for major business decisions such as external guarantee, major investment, entrusted financial management and related party transactions.
Article 6 of the measures for the supervision and administration of unlisted public companies (Order No. 161 of the CSRC) stipulates that securities companies, law firms, accounting firms and other securities service institutions that issue special documents for the company shall be diligent, honest and trustworthy, earnestly perform the obligation of careful verification, and express professional opinions in accordance with the business rules, industrial practice norms and professional ethics formulated according to law, Ensure the authenticity, accuracy and completeness of the documents issued, and accept the supervision of the CSRC.
Article 44 of the measures for the administration of information disclosure of non listed public companies (Order No. 162 of the CSRC) stipulates that securities service institutions that issue special documents for listed companies to fulfill their information disclosure obligations shall be diligent, honest and trustworthy, earnestly perform the obligation of prudent verification, and express opinions in accordance with the business regulations, industry practice norms, regulatory rules and moral standards formulated according to law, so as to ensure the authenticity and integrity of the documents issued Accuracy and completeness. A listed company shall cooperate with the work of the securities service institution providing services, provide materials related to its practice as required, and shall not require the securities service institution to issue documents inconsistent with objective facts or hinder its work. When issuing special documents for information disclosure, if the securities service institution finds that the materials provided by the listed company have false records, misleading statements and major omissions, it shall require them to supplement and correct them. If the listed company refuses to supplement or correct, the securities service institution shall report to the national stock transfer company. If the circumstances are serious, it shall also report to the dispatched office of the CSRC where the listed company is registered.
Article 83 of the measures for the supervision and administration of unlisted public companies stipulates that if the information disclosure obligors and their directors, supervisors and senior managers, the controlling shareholders and actual controllers of the company, and the securities companies, securities service institutions and their staff who issue special documents for the information disclosure obligors violate the Securities Law, administrative regulations and relevant provisions of the CSRC, the CSRC may order them to make corrections Regulatory measures such as regulatory conversation, issuance of warning letter and identification of inappropriate candidates shall be recorded in the integrity file; If the circumstances are serious, the CSRC may take measures to prohibit the relevant responsible persons from entering the securities market.
Article 51 of the measures for the administration of information disclosure of non listed public companies stipulates that if the securities service institutions and their personnel that issue special documents for the listed companies to perform the obligation of information disclosure violate the securities law, administrative regulations and the provisions of the CSRC, the CSRC may order corrections, regulatory talks, issue warning letters and other regulatory measures that can be taken according to law.
The following is the original text:
Decision of Shenzhen Securities Regulatory Bureau on Issuing warning letters to Dahua Certified Public Accountants (special general partnership) and certified public accountants Hu Jinke, Shen Hongbo, Zhao Jun and Luo Jiyun
Decision on administrative supervision measures (2022) No. 44
Dahua Certified Public Accountants (special general partnership) and certified public accountants Hu Jinke, Shen Hongbo, Zhao Jun and Luo Jiyun:
In accordance with the relevant provisions of the securities law of the people’s Republic of China, our Bureau conducted a special inspection on the annual report audit project of Shenzhen Sisheng Energy Co., Ltd. (hereinafter referred to as Sisheng energy or the company) from 2018 to 2020. After investigation, you have the following problems:
I. failure to carefully assess the risk of material misstatement of monetary funds
The 2020 annual report of Sisheng energy disclosed that many bank accounts were frozen, and there were large and frequent capital exchanges with related parties and some non-financial institutions during the reporting period. The inspection found that “the company has the motivation to make false presentation of financial statements in order to meet the financing requirements” has been identified in the evaluation form of fraud risk factors, but it has not been carefully evaluated in the risk assessment procedure whether the fraud motivation leads to the risk of significant difference between the company’s financial statement level and the recognition level, and whether it is a special risk.
The above situation does not comply with the provisions of Articles 28 and 30 of the auditing standards for Chinese certified public accountants No. 1211 – identifying and assessing the risk of material misstatement by understanding the auditee and its environment.
II. Understanding internal control is a mere formality
The inspection found that your understanding of the internal control of Sisheng energy in 2020 is a mere formality.
First, the key control points related to audit were not identified. When you understand the company’s internal control, you do not identify whether the purchase receipt and sales issue documents are prepared and whether the sales are recorded in the correct accounting period as key control points.
Second, understand the contradiction between internal control and audit conclusion. The audit draft records that “the company did not check and clean up the bank account and online banking authority” and “the fund payment business was subject to true and accurate accounting treatment” were not implemented, but you still concluded that “the control design is effective and implemented”, which is inconsistent.
Third, the walkthrough test is not enough to support the conclusion that the internal control design and operation are effective. The walkthrough test of your sales and collection cycle for the record of “approval and accurate record of bad debt write off” is only to “visit the manager of the finance department to confirm whether the balance of accounts receivable of the company is accrued for bad debt reserves in accordance with the company’s financial policies”. It does not obtain sufficient and appropriate audit evidence for the approval control of bad debt write off, and the interview record of the manager of the finance department is not attached to the audit draft.
Fourth, the business situation of the company recorded in the audit draft is inconsistent with the actual situation. If the names of the company’s general manager and cashier in the sales and collection cycle record are inconsistent with the actual employment situation of the company; The collection and distribution of manufacturing expenses recorded in the production and storage cycle are inconsistent with the actual situation of the company; You have directly copied the drafts of other audit projects without modification.
The above situation is not in conformity with the provisions of Articles 15 and 16 of the auditing standards for Chinese certified public accountants No. 1211 – identifying and assessing the risk of material misstatement by understanding the audited entity and its environment and Articles 10, 11 and 15 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
III. inadequate implementation of control test
The inspection found that your institute failed to implement the internal control test of Sisheng energy in 2020.
First, it failed to obtain sufficient and appropriate audit evidence for the effectiveness of the internal control of sales and collection cycle. You identified the operating income as the risk of material misstatement at the recognition level. When performing the control test on the sales and collection cycle, you only tested the two control points that the contract has been approved and both parties have sealed and confirmed the contract terms. Without testing the key control points such as sales delivery, whether the accounting period is correct and accounts receivable collection, you came to the conclusion of the effectiveness of the operation of the sales and collection cycle control, Failure to obtain sufficient and appropriate audit evidence for the effectiveness of the control operation related to this cycle.
Second, the audit evidence obtained from the control test is insufficient to support the audit conclusion. The date of the receipt attached to the March 2020 voucher extracted from your purchase and payment cycle control test is December 2019, but the company did not pay attention to the cross period confirmation of purchase, and still came to the conclusion that the control operation of “purchase item transaction record in an appropriate period” is effective.
Third, the sample size of the implementation control test of the internal control of monetary funds is insufficient. For example, in the internal control test of checking the consistency of bank statements, bank deposit journals and general ledger, you draw the conclusion that “the check is consistent and the control operation is effective” with only one sample size. You do not draw enough sample size to reduce the sampling risk to an acceptable low level.
The above situation does not comply with the provisions of Articles 8, 9 and 10 of the auditing standards for Chinese certified public accountants No. 1231 – Countermeasures against the risk of material misstatement assessed, Articles 16 and 17 of the auditing standards for Chinese certified public accountants No. 1314 – audit sampling, and Article 14 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
IV. failure to maintain due professional suspicion of the company’s fraud
According to the inspection of the company, the China Merchants Bank Co.Ltd(600036) 755920127210904 account of Sisheng energy received 50 million yuan transferred from Changde DINGHE Kechuang industrial investment fund partnership (limited partnership) (hereinafter referred to as DINGHE Kechuang) in June 2018. In September 2018, the company transferred the 50 million yuan to the related party Shenzhen Shengsheng equity investment enterprise (limited partnership) (hereinafter referred to as Shengsheng investment), and the company did not account for the 50 million yuan transferred in and out; In November 2018, the company will directly write off the accounts receivable of five companies from Shengsheng investment current account of 4.5 million yuan, without recording other accounts payable to related parties; Without actually receiving funds, the company falsely recorded the receipt of 30 million yuan and 20 million yuan of investment funds in the financial system in November 2020 and January 2021, and falsely offset the accounts payable and other accounts payable. The above situation led to the false disclosure of non operating capital transactions of related parties in the company’s annual reports from 2018 to 2020.
The inspection found that your company did not maintain due professional doubts about some abnormal clues during the audit in 2018 and 2020, implemented further audit procedures, and found no relevant fraud of the company.
First, according to the 2018 Monetary Fund draft of Sisheng energy, the amount of debit and credit of China Merchants Bank Co.Ltd(600036) 755920127210904 account in this period is 500 yuan and 500 yuan respectively. The summary sheet of correspondence records “no reply, bank statement has been checked”.
Your office did not maintain due professional suspicion when checking the bank statement of the account, and did not pay attention to the abnormal situation that the bank account received 50 million yuan of equity investment transferred by DINGHE Kechuang in June 2018 and transferred 50 million yuan to Shengsheng investment, a related party in September 2018, and did not find the fraud that the company did not carry out accounting treatment for the transfer in and transfer out of 50 million yuan in 2018.
Second, the Bank Of Communications Co.Ltd(601328) 443066199013 Jiangxi Huangshanghuang Group Food Co.Ltd(002695) 791 account of Sisheng energy was opened in November 2020. In the detailed statement of monetary funds, the amount of debit and credit of this account in 2020 was 30.015 million yuan and 30.006 million yuan respectively, which was the largest bank account of Sisheng energy in the current period. You have obtained the 2020 bank statement of the account, which shows that the amount of debit and credit during the reporting period of the account is 453 yuan and 135016 yuan respectively, which is significantly different from the amount recorded in the monetary capital statement. You didn’t maintain your due professional suspicion, didn’t carry out two-way inspection of large amount revenue and expenditure on the bank account, and didn’t find the fraud of the company’s fictitious monetary capital transaction.
Third, when performing the detailed test on the bank deposit of Sisheng energy in 2020, your office extracted two vouchers for the company’s receipt of DINGHE Kechuang’s investment of 30 million yuan and the repayment of Shengsheng’s investment of 212488 million yuan to the related party in 2020. The audit draft records have checked the relevant bookkeeping vouchers and bank receipts, and the scanned copies of the above two bank receipts have been retained in the audit draft of investment income and other payables. Your office has not checked the original vouchers of the above large amount receipts and expenditures of monetary funds, found that the scanned copy of the bank receipt retained in the audit manuscript is forged, and found no fraud in the company’s fictitious monetary capital transactions.
Fourth, when you carried out the detailed test on the accounts receivable of Sisheng energy in 2018, you extracted the company’s vouchers No. 76, 183 and 182 on November 18, 2018. The accounts receivable of three companies were received respectively. The audit draft records have checked the bank receipts. The names of the collection unit and the sales customer are consistent, and there is no abnormality. However, the payback Party of the above three vouchers is Shengsheng investment, a related party of the company, and there is no entrusted payment agreement attached to the vouchers. You didn’t perform the detailed test of accounts receivable of Sisheng energy in place, and didn’t maintain professional doubt about the abnormal situation that the name of the collection unit is inconsistent with that of the accounts receivable customer.
The above situation does not comply with the provisions of Article 28 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for audit work of certified public accountants, Article 13 of the auditing standards for Chinese certified public accountants No. 1141 – responsibilities related to fraud in the audit of financial statements, and articles 10, 11 and 15 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
V. failure to properly judge whether part of the company’s accounting treatment complies with the provisions of the accounting standards for business enterprises
In 2020, Sisheng energy transferred 29.34% of the equity of its subsidiary Hunan Sisheng new energy Co., Ltd. to DINGHE Kechuang, and confirmed the investment income of RMB 32.296 million in the statement of the parent company. When the company has repurchase obligations for equity transfer in relevant agreements and is expected to trigger repurchase terms, the above transactions are measured as equity instruments, which does not comply with the provisions of Article 4 of the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments. In 2019 and 2020, the company will record the government subsidies related to assets of 5 million yuan received into the current profit and loss at one time; On the ground of “two exemptions and three reductions by half”, the plant rent in 2019 and 2020 is not accrued and amortized, which does not comply with the accounting standards for business enterprises.
The inspection found that your office did not make appropriate professional judgment on whether the above accounting treatment of the company complies with the provisions of the accounting standards for business enterprises when auditing the financial statements of Sisheng energy in 2019 and 2020.
The above situation does not comply with the relevant provisions of Article 29 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for audit work of certified public accountants.
Vi. inadequate implementation of monetary fund audit procedures
The inspection found that when you audited the 2020 annual report of Sisheng energy, you did not obtain sufficient and appropriate audit evidence for the integrity of bank accounts. You only checked the bank account details exported from the company’s financial system to the bank account opening list, did not reverse check the integrity of the company’s bank account from the bank account opening list, did not pay attention to the abnormalities that the three bank accounts listed in the bank account opening list were not recorded in the company’s Monetary Fund details, and did not implement further audit procedures. In addition, your verification of the account list and account opening information of Sisheng energy bank is a mere formality. Your “bank account list and account opening information checklist” records that all bank accounts are in normal use, but the account opening list shows that some bank accounts of the company have been closed, and the draft record is inconsistent with the actual situation of the company.
The above situation does not comply with the provisions of Article 10 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
VII. Inadequate implementation of letter confirmation procedures
First, the due control over the confirmation procedure was not maintained. During the 2020 audit of Sisheng energy, your company implemented the letter confirmation procedure for the accounts receivable of 22 customers in total of the parent and subsidiary companies. It is noted that the sending address of 13 customers is inconsistent with the registered address, and the reason for the inconsistency of 7 of them is that “the registered address is inconsistent with the office address, and the sending address is consistent with the office address”. Sufficient and appropriate audit evidence is not obtained for the accuracy of the sending address; It did not maintain due professional doubts about some abnormal situations, such as the sending address of individual letters is hotels and apartments, the sending address of Shenzhen Tianji Technology Investment Co., Ltd. (hereinafter referred to as Tianji Technology) is the same as that of Shenzhen Desheng Investment Co., Ltd., the reply address of Shenzhen yiben electronic Digital Technology Co., Ltd. is inconsistent with that of the sending address, and the courier of accounts receivable Reply of Dongguan Yuna Electronics Co., Ltd. is addressed to Wu Xiaoxiong, board secretary of Sisheng energy, Implement further audit procedures to investigate the causes of anomalies.
Second, the confirmation procedures were not implemented for all bank accounts, and the confirmation information in the bank confirmation letter was incomplete. During the 2020 audit of Sisheng energy, your office did not implement the letter confirmation procedure for the two accounts with zero amount and balance, and did not record the reasons for the lack of letter confirmation in the audit draft; In some bank confirmation letters, the bank is only required to confirm and reply to the “bank deposit” information. For other information in the confirmation letter, such as bank loan, current account cancellation, amount incurred, etc., you indicate “no letter of confirmation”.
Third, the confirmation letter that may have doubts about the reliability did not obtain further audit evidence. Knowing that there are serious differences and lawsuits between Tianji technology and Sisheng energy on accounts receivable, your office has not maintained due professional doubts about the abnormal situations that do not conform to the general business logic, such as the receipt of Tianji technology’s reply to the confirmation letter of accounts receivable during the 2020 annual audit, carefully judged the reliability of the reply to the above confirmation letter, and obtained further audit evidence to eliminate these doubts.
Fourth, the implementation of alternative procedures is not in place. If you fail to carry out substitution test on individual unresponsive current accounts; When performing the substitution test on the accounts receivable of individual customers, some delivery notes, Inspection Notes, sales invoices and other information were not filled in, and the relevant reasons were not recorded, so the execution of the substitution test was insufficient; Some banks reply with credit certificates, only confirming the ending balance of the bank account, and you have not implemented alternative procedures for the information such as whether the funds not confirmed in the reply are limited; For 7 bank accounts that did not reply, only check whether the balance of the bank statement is consistent with the balance of the company’s bank subsidiary ledger, and the substitution procedure is insufficient.
Fifth, no further audit procedures were carried out for the non conformance of the reply. The confirmation letter of Hunan Sisheng Bank Of Communications Co.Ltd(601328) Changde railway station sub branch listed that the account was frozen, and the bank reply showed that the account was not frozen.
You did not record the discrepancy in the manuscript, nor did you take further audit procedures to investigate the cause of the discrepancy.
Sixth, there are many errors in the preparation of letter proof manuscript. For example, there are some problems in the “summary of bank deposits and other monetary capital letters”, such as the wrong filling of some bank account numbers, and the index number does not match the index number in the upper right corner of the bank confirmation letter.
The above circumstances are not in conformity with Article 28 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for auditing work of certified public accountants, articles 12, 14, 17, 19 and 21 of the auditing standards for Chinese certified public accountants No. 1312 – correspondence, and Article 10 of the auditing standards for Chinese certified public accountants No. 1131 – draft of auditing work Article 13.?
VIII. Inadequate implementation of income audit procedures
First, the analytical procedure of income is a mere formality. In 2020, the cell revenue of the parent company of Sisheng energy decreased by 56% year-on-year. In the audit statement of “business / product sales analysis form”, you recorded that “the sales of electric cells increased in this period because the company did some trade in this period, so the sales volume and sales volume of electric cells increased partially”. The analytical statement is inconsistent with the actual situation of the company.
Second, the audit evidence without doubt about its reliability should maintain due professional doubt. Your office obtained some sales contracts and orders of the company when implementing the audit procedures for the operating revenue of Sisheng energy in 2020, but did not maintain due professional doubt. You should pay due attention to the obvious inconsistency of the official seals of Lanhai Jiahe on the two orders signed by Sisheng energy and Shenzhen Lanhai Jiahe Electronic Technology Co., Ltd. (hereinafter referred to as Lanhai Jiahe), and implement further audit procedures.
The above situation is not in conformity with the provisions of Article 28 of China’s auditing standards for certified public accountants No. 1101 – overall objectives and basic requirements for audit work of certified public accountants, Article 5 of China’s auditing standards for certified public accountants No. 1313 – analysis procedures and Article 15 of China’s auditing standards for certified public accountants No. 1301 – audit evidence.
IX. inadequate implementation of audit procedures for credit impairment losses
The inspection found that during the audit in 2020, your firm identified the credit impairment loss as the major misstatement risk at the recognized level, and only accrued the credit impairment loss on the balance of all accounts receivable of the company according to the aging method. After knowing that there were serious differences and lawsuits with skykey technology on product quality in 2020, Shenzhen yiben electronic digital technology Co., Ltd When Guizhou bainawei Intelligent Technology Co., Ltd. has no executable property, it did not analyze the recoverability of the above single major accounts receivable based on the repayment ability of specific customers, did not properly evaluate the rationality of the company’s withdrawing credit impairment loss according to the aging method for accounts receivable with obvious signs of impairment, and the audit procedures for credit impairment loss were not implemented in place.
The above circumstances are not in conformity with the provisions of Articles 18 and 23 of the auditing standards for Chinese certified public accountants No. 1321 – audit accounting estimates (including fair value accounting estimates) and related disclosures.
X. inadequate implementation of audit procedures for asset impairment losses
The inspection found that your audit procedures for asset impairment loss of Sisheng energy in 2020 were not implemented in place. For example, for polymer production equipment with signs of impairment, the rationality of not conducting impairment test on fixed assets is not properly evaluated; During the impairment test of inventory, the net realizable value was not determined according to the holding purpose, and the audit procedures for inventory impairment were not implemented in place.
The above circumstances are not in conformity with the provisions of Articles 18 and 23 of the auditing standards for Chinese certified public accountants No. 1321 – audit accounting estimates (including fair value accounting estimates) and related disclosures.
Xi. Inadequate implementation of inventory supervision procedures
The inspection found that the implementation of the inventory supervision procedures you implemented was not in place, and no further audit procedures were implemented for the inconsistency between the inventory supervision details and the inventory supervision result summary, and the counting quantity and book quantity to investigate the reasons for the difference.
The above circumstances are not in conformity with the provisions of Articles 10, 13 and 15 of the auditing standards for Chinese certified public accountants No. 1301 – audit evidence.
XII. Lack of independence of Project Manager
The inspection found that your auditor Luo Jiyun, as the on-site person in charge of the audit project of the annual report of Sisheng energy from 2018 to 2020, violated the requirements of the code of professional ethics on independence and had economic interests with the auditee. For example, during the audit of the 2020 annual report, the deputy general manager of Sisheng energy transferred 200000 yuan to Luo Jiyun through his personal bank account. The summary of the bank flow is “loan”. Up to now, the 200000 yuan has not been returned; In September 2018, Sisheng energy paid 50000 yuan to Luo Jiyun’s personal bank account, and the invoice shows the service fee.
The above situation does not comply with the provisions of Article 27 of the auditing standards for Chinese certified public accountants No. 1101 – general objectives and basic requirements for audit work of certified public accountants and Article 67 of the code of professional ethics for Chinese certified public accountants No. 4 – Requirements for independence of audit and review business.
XIII. Review of project quality control
The above-mentioned obvious implementation is not in place in the risk assessment procedures of Sisheng energy audit project and the response procedures for identifying the risk of major misstatement at different levels, but the project manager, project partner and project quality control reviewer did not find any audit problems when reviewing the quality control of the project, and the implementation of quality review procedures is not in place.
The above circumstances do not comply with the relevant provisions of articles 30, 31 and 34 of the auditing standards for Chinese certified public accountants No. 1121 – quality control over the audit of financial statements.
Our bureau finds that your above-mentioned behavior does not meet the relevant requirements of the practice standards for Certified Public Accountants of China, and violates the provisions of Article 6 of the measures for the supervision and administration of unlisted public companies (CSRC Order No. 161, the same below) and paragraph 1 of Article 44 of the measures for the Administration of information disclosure of unlisted public companies (CSRC Order No. 162, the same below). According to Article 83 of the measures for the supervision and administration of unlisted public companies and Article 51 of the measures for the administration of information disclosure of unlisted public companies, our bureau has decided to take regulatory measures to issue warning letters to Hu Jinke, Shen Hongbo, Zhao Jun, the certified public accountants and Luo Jiyun, the project manager.
In accordance with the relevant provisions, I would like to remind you that you should strictly abide by the relevant laws and regulations and the provisions of the code of practice for Chinese certified public accountants, take measures to strengthen internal management, establish and improve the quality control system and ensure the quality of audit practice; Relevant certified public accountants shall strengthen the study of relevant laws and regulations on Securities and futures, and fulfill their audit obligations diligently. You should submit a written report to our bureau within 15 working days from the date of receiving this decision.
If you are not satisfied with this regulatory measure, you can apply for administrative reconsideration to the China Securities Regulatory Commission within 60 days from the date of receiving this decision, or bring a lawsuit to the people’s court with jurisdiction within 6 months from the date of receiving this decision. During the period of reconsideration and litigation, the above regulatory measures shall not be suspended.
Shenzhen Securities Regulatory Bureau
March 21, 2022
