Regulatory Evolution Of "Non Standard Audit Opinion" In The 48Th Issue Of Shenzhen Securities Regulatory Commission

In late January, the annual reports of wohua pharmaceutical, Anyue smart power and * ST Carey were released one after another, which opened the curtain of annual report disclosure in 2020, and * ST Carey became the first company to be issued with non-standard audit opinions this year.

Audit opinion, as the "label" of auditors on whether the listed companies accurately use accounting language to tell the stories of enterprises, can not only help investors to identify whether the financial data of the company is true and reliable, but also an important basis for judging the investment value of the company. This issue of "deep view supervision" column will focus on non-standard audit opinion and its regulatory evolution, to talk about how to treat non-standard audit opinion.

"Soaring" non standard audit opinions

In recent years, the non-standard audit opinions of A-share market have increased sharply.

According to the reporter's statistics, from 2017 to 2019, the number of non-standard opinions in Shanghai and Shenzhen stock markets were 124, 219 and 275, respectively, accounting for 3.5%, 6% and 7.15% of the whole market. During this period, the number of "unable to express opinions" increased from 17 to 38 and 46. In 2019, the first audit report with "negative opinion" for A-share was born in 2019.

For the supervision of non-standard audit opinions, the core of our capital market has always been risk warning, that is to guide investors to judge the intrinsic value of stocks and vote with their feet. Many investors ridicule that the standard unqualified opinion issued by the accountant expresses that "no evidence of fraud has been found". The qualified opinion can be equivalent to "false statement, don't read it". It can not express the opinion that "I refuse to cooperate with a poor cheater", and the negative opinion is "I report the fraud". Although the above statement can not help but glimpse, but the impact of non-standard opinions on the credibility of financial statements can be seen.

Taking the stock price reaction of 47 companies in A-share market in 2019 as an example, the stock price of the next day after the disclosure of non-standard report was 3.09%, 10.56% for five consecutive trading days, and 11.84% for 10 consecutive trading days, indicating that the non-standard opinions have fully transmitted the information of the company's operation or internal control defects to the market.

However, there are still many problems in practice.

For example, the effectiveness of revealing major financial problems is limited. In 2019, among the 275 non-standard opinions of A-share, only the audit reports of a few companies such as * ST fukong and LETV clearly pointed out that there were material misstatement in the financial statements, and the rest were limited in the scope of audit. However, these doubtful financial problems can only be concluded after being filed for investigation by the regulatory authorities, and the major financial problems of listed companies have not been truly revealed to investors.

Another example is the difficulty of delisting non-standard opinions. For a long time, the delisting of A-share non-standard opinions needs to be observed for three consecutive years, and it does not cross apply with other financial indicators. Therefore, the company can still eliminate the non-standard opinions by selling assets and replacing auditors after being issued with no opinion or negative opinion in the first year, so as to avoid delisting, resulting in some zombie enterprises staying in the market for a long time.

Taking the non-standard opinions in the past two years as an example, a total of 38 A-share companies were unable to express their opinions in 2018. In addition to 4 delisting companies which did not disclose their 2019 annual reports, 11 of the remaining 34 companies continued to be issued with non-standard opinions in 2019, 19 with qualified opinions and 4 with unqualified opinions. Most of the companies' situation did not improve substantially, and there were non-standard opinions in the two years before and after When the matters involved are the same but the types of audit opinions are different. For example, at the beginning of 2020, the company suddenly replaced the audit institution from zhongshenhua to Zhongxing caiguanghua. Under the circumstances that the internal control audit report is negative, the special audit report on fund occupation is unable to express opinions, and the non-standard matters have no significant changes compared with those involved in 2018, the company has issued a qualified audit opinion, which obviously has the intention of purchasing audit To avoid suspension of listing.

Difficult problems in supervision of non standard opinions of "breaking the situation"

Before 2012, the delisting system of a shares was mainly based on financial data indicators, without considering the type of audit opinion. According to the reporter's statistics, in 2007, 2008 and 2009, nearly 0.8% of a shares were unable to express their opinions. Among them, * ST Zhonghua a, China Tianying and Western entrepreneurship were issued for six consecutive years, and China Tianying and Western entrepreneurship were unable to express their opinions, but they could not be punished accordingly.

In 2012, the A-share market included the unspeakable and negative opinions in the non-standard audit opinions into the delisting index. In the past three years, except for delisting Baoqian, Longli, Qianshan and Kaidi for three consecutive years, and more than 10 companies such as * ST Xinwei, * ST Qiulin, * ST Oupu and Tianxiang environment have been unable to express their opinions for two consecutive years, other companies have been issued with no express opinions for at least one year, which fully reflects the adaptability adjustment made by listed companies and audit institutions.

On the last day of 2020, Shenzhen and Shanghai stock exchanges simultaneously revised and issued new delisting rules, adding delisting indicators to warn companies of delisting risks to be issued with qualified opinions, and the suspension of listing was cancelled. Specifically, if the listed company touches the financial indicators and is warned of delisting risk, the company's shares will be delisted if the financial report of the second year is issued with a qualified, negative or unqualified audit report.

In the American securities market, once the financial report of an enterprise is issued with a non-standard opinion, the SEC will immediately ask the company to suspend trading for correction. If the company fails to make correction within the time limit, it will be delisted. Hong Kong, China also requires suspension of trading for correction if it is unable to express opinions or negative opinions. If the company fails to correct within 18 months (12 months of GEM), it will be delisted. In the view of insiders, this delisting system reform not only draws lessons from the delisting regulatory systems of the United States and Hong Kong, China, but also combines the suspension and resumption system of China's "no suspension of trading as the principle and suspension as the exception", further optimizes the delisting indicators, shortens the delisting process, unblocks the exit channels, and highlights the importance of audit opinions.

Further strengthen the supervision of audit institutions

It is worth mentioning that the auditing standards are principle oriented, and their advantages are relatively simple and clear, but they also put forward high requirements for Accountants' professional ethics, and give accountants more room for judgment in practice. For example, the nature of the non-standard opinions is whether there are significant misstatement in the financial statements, or the lack of sufficient and appropriate audit evidence; or whether the non-standard opinions related matters have or may have extensive impact on the financial statements. These standards require accountants to make a comprehensive judgment based on the specific conditions of the company and the audit business.

Taking * ST reclamation as an example, on the one hand, the accountant said in the audit report that he could not obtain sufficient and appropriate audit evidence on the illegal guarantee, estimated liabilities and other matters, and issued an opinion on the company's 2019 annual report. On the other hand, in the special description of non-standard opinions, the above-mentioned matters obviously violate the accounting standards, systems and relevant information disclosure regulations, which is obviously in the audit model In order to avoid the audit responsibility and minimize the negative impact on the company, we should cover up the material misstatement of the company's financial statements.

Another example is St. King Kong. Before the performance explosion in 2019, the Shenzhen Stock Exchange has sent several public letters to the company, questioning the company's suspected fund occupation and illegal guarantee, misappropriation of raised funds, questionable performance authenticity, and illegal financial assistance. However, in 2019, the accountants still expressed that they were unable to express their opinions on debt repayment, asset impairment, related parties and related transactions due to limited audit scope With reservations.

The above cases reflect that some accountants lack due professional prudence in the practice process and are suspected of evading audit responsibility. It also reflects that some accounting firms are more "rash" in the process of undertaking business. How to strengthen the constraints of audit institutions has become an important issue in front of supervision.

At the beginning of 2020, the new securities law was issued, which cancelled the qualification examination and approval of audit institutions engaging in securities service business, and changed it to record management. Some audit institutions with lack of experience in securities business began to undertake the audit business of listed companies. For example, Shenzhen Tangtang accounting firm has only 7 Certified Public Accountants who have engaged in securities service business, but has undertaken the annual audit business of three delisting companies, namely, * ST Xinyi, * ST stetai and * ST Jinzhou.

In order to prevent some bad audit institutions from "shielding" problem companies, Shenzhen Stock Exchange formulated and issued the announcement form of listed companies' plan to employ accounting firms on March 1, 2020, and revised it again in January this year. The announcement format highlights the key points of supervision. For companies involved in the change of accounting firms, it is required to explain the situation of the previous audit institutions and the audit opinions of the previous year, the reasons for the proposed change of accounting firms, and the communication between the listed companies and the former and former Accountants. At the same time, the audit committee, independent directors and the board of directors are required to give special tips for the non-standard audit opinions issued in the previous year, and the audit committee, independent directors and the board of directors have objections to the selection of accounting firms.

In this delisting system reform, a new delisting indicator with qualified opinions is added. Meanwhile, audit opinions and other financial indicators are cross applied to accelerate the delisting rhythm, strictly implement delisting, and reduce the space for listed companies to evade. This further highlights the importance of intermediary opinions and reflects the determination of regulators to strengthen the supervision of non-standard opinions. However, in order to solve the problem of non-standard audit opinions, in addition to strengthening the supervision and guidance of regulatory agencies, more still rely on the listed companies and audit institutions themselves. Listed companies should be based on good faith to ensure the authenticity, accuracy and integrity of financial reports. Auditors need to take up their responsibilities to ensure that the stories told to investors in accounting language are not lies.