The secret is out! The accomplice of A-share fraud was heavily fined

Sharp eyes on finance

2024-05-15 17:34Posted on the official account of Beijing Ruiyan Finance

Kangmei Pharmaceutical's fraud case has made Ruihua, a well-known accounting firm in China, notorious, and now there is no name of Ruihua in the annual ranking of 100 accounting firms by the Chinese Institute of Certified Public Accountants. However, in recent years, another well-known domestic accounting firm with the word "Hua" has been repeatedly criticized, because Dahua has been frequently listed in the recent regulatory crackdown on financial fraud, and has repeatedly issued false audit reports for listed companies.

Will Dahua become the next Ruihua?

Jin Tongling's 1.1 billion fraud case was discovered, and Dahua was heavily fined

Two days ago, on May 13, a penalty notice from the Jiangsu Securities Regulatory Bureau caused a great "shock" in the industry, which almost ripped out all the securities firms and accounting firms involved in the financial fraud case of Jin Tongling, an A-share listed company.

The notice was issued on May 13, but the penalty decision was issued on May 10. The penalty is the result of an investigation into Dahua Accounting Firm's failure to exercise due diligence in the audit of Jin Tongling's financial statements from 2017 to 2020. Dahua had false records in the audit report issued by Jin Tongling's financial report from 2017 to 2020, during which the audit fee income was 6.8867 million yuan, and the Jiangsu Securities Regulatory Bureau imposed a fine of 41.32 million yuan on Dahua Law Firm, with a total fine of 41.32 million yuan, and suspended Dahua Securities service business for 6 months, and fined the three certified public accountants who participated in the audit of 1.5 million yuan, 800,000 yuan, and 400,000 yuan respectively.

(Screenshot of the administrative penalty announcement of Dahua Office)

Regarding Jin Tongling's financial fraud, on June 27 last year, the regulator filed a case for investigation on suspicion of letter disclosure violations, and it was found that Jin Tongling inflated revenue by 501 million, 549 million, 69 million, and 15 million respectively from 2017 to 2020, with a total of 1.134 billion inflated revenue and a total of 410 million inflated profits.

(Screenshot of Jin Tongling's administrative punishment announcement)

With the regulatory penalties for the listed company Jin Tongling and the accounting firm Dahua one after another, the penalties for the relevant securities firms also followed. On April 13, Huaxi Securities was suspended by the Jiangsu Securities Regulatory Bureau for 6 months for failing to be diligent and conscientious, having false records, and failing to implement the work in the non-public offering sponsorship project of Jin Tongling in 2019. On May 14, Soochow Securities was issued a warning letter by the Jiangsu Securities Regulatory Bureau for failing to be diligent and conscientious in the non-public offering sponsorship project of Jin Tongling in 2021, insufficient follow-up and implementation and imperfect working papers, Guohai Securities was issued a warning letter by the Jiangsu Securities Regulatory Bureau for failing to be diligent and conscientious in the non-public offering sponsorship project of Jin Tongling in 2017 and having false records, and Everbright Securities was issued a warning letter for failing to be diligent and conscientious in the project of issuing shares to purchase assets in 2018 and was criticized by the Shenzhen Stock Exchange at the same time.

(Source: Sina Finance)

(Source: Sina Finance)

This is really a bit like the situation in the IPO incident of Zhejiang Guoxiang, a company directly pulled out a series of illegal stakeholders, Jin Tongling 4 years of fraud of 1.1 billion led to the provision of false audit reports of Dahua, the sponsorship process of violations of Huaxi, Soochow, Guohai, Everbright several brokerages, these related interests this year to collect penalties is really happy!

It is worth mentioning that since the financial fraud of Jin Tongling in 2017, the company's secondary market share price has plummeted by more than 85%.

(Screenshot of Jin Tongling's stock price trend)

Top 10 well-known accounting firms by audit revenue

To be able to falsify the audit reports of listed companies so blatantly and openly, the scale of Dahua Accounting Firm should not be too small, and if it is too small, a fine may be over.

In fact, Dahua and Ruihua in the Kangmei fraud case are both domestic "Eight" accounting firms, and in recent years, with the occurrence of related violations of laws and regulations, the "Eight" has gradually become a bit out of character!

According to the 2022 ranking list of 100 accounting firms released by the China Note Association, the top four are undoubtedly PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte, and the fifth to tenth are Lixin, Tianjian, Rongcheng, ShineWing, Grant Thornton, and Baker Tilly International, and Dahua ranks eleventh with 3.364 billion audit business income.

In previous years, in the 2019 top 100 rankings, Dahua ranked 10th with an audit income of 1.99 billion, ranked 9th with an audit income of 1.709 billion in 2018, and Ruihua ranked 6th with an audit income of 2.878 billion in the same period.

(Screenshot of the ranking of 100 accounting firms of the China Note Association)

However, a few years after the outbreak of the Kangmei Pharmaceutical and Kangdexin "Shuangkang" financial fraud cases, Ruihua, which once ranked sixth, has completely disappeared from the top 100 ranking list of the China Note Association, and Dahua, which has been criticized recently, has gradually retreated from 9th to outside the top 10.

Shareholders should know that assisting Shuangkang to commit fraud can be described as Ruihua's "big deal", Kangmei Pharmaceutical Co., Ltd. has inflated monetary funds by 88.68 billion yuan and inflated revenue by 29.128 billion yuan for 3 consecutive years from 2016 to 2018, and Kangdexin has inflated profits of 11.921 billion yuan for 4 consecutive years from 2015 to 2018, which is a major fraud case of 10 billion yuan!

In the 2023 financial report, A-shares include the Science and Technology Innovation Board, the Beijing Stock Exchange, and there are 426 listed companies whose annual reports are auditors Dahua, and the well-known Changchun High-tech audit institution is also Dahua.

Zhangzidao, Changyuan Group, Oriental Jinyu

It's all Dahua's "masterpieces"

Dahua has so many customers in A-shares, and this situation of Jin Tongling is obviously not an isolated case. By checking the official website of the China Securities Regulatory Commission and the websites of 32 dispatched agencies, there are 90 pieces of administrative penalties and regulatory dynamic information related to Dahua accounting firms, among which the securities regulatory bureaus of Guangdong, Shanghai and Shenzhen have the most regulatory information on Dahua.

(Data source: local securities regulatory bureau websites, Ruiyan brother collation)

The most noteworthy of mentioning here are the three typical cases of fraud such as Zhangzidao, Changyuan Group, and Dongfang Jinyu.

That's right, these three audit institutions are all Dahua!

On March 14 last year, the official website of the China Securities Regulatory Commission announced the administrative punishment of Dahua and two certified public accountants who were responsible for the financial audit of Zhangzidao, and Dahua falsely recorded in the audit report of Zhangzidao's 2016 financial report, and Zhangzidao reduced its operating costs by 60.0299 million yuan that year. The non-operating expenses were reduced by 71.1178 million yuan, but Dahua issued a standard unqualified audit report, confiscating 1.2264 million yuan of audit income and fining 2.4528 million yuan, and two certified public accountants were fined 50,000 yuan respectively.

(Screenshot of administrative punishment of Dahua Accounting Firm)

On May 16, 2022, the Shenzhen Securities Regulatory Bureau imposed penalties on Dahua and 4 certified public accountants responsible for the audit of Changyuan Group, which inflated its revenue by 358 million yuan in 2016 and 2017 through various methods such as fictitious overseas income, repeated recognition of income, and signing "yin-yang contracts". The inflated profit was 302 million yuan, but Dahua still issued a standard unqualified audit report and charged 4.1 million audit fees, and the Shenzhen Securities Regulatory Bureau imposed a fine of 11.6037 million yuan on Dahua and a fine of 60,000 yuan on the four certified public accountants.

(Screenshot of administrative punishment of Dahua Accounting Firm)

On June 30, 2022, the China Securities Regulatory Commission punished Dahua and the two certified public accountants responsible for the audit of Dongfang Jinyu, in 2017, Dongfang Jinyu inflated revenue by 294 million yuan and inflated profits by 110 million yuan, but Dahua still issued a standard unqualified audit report and charged 1.1 million yuan in audit fees, and the CSRC imposed a fine of confiscation of 1.1 million yuan in income and a fine of 2.2 million yuan on Dahua, and a fine of 50,000 yuan on the two certified public accountants.

(Screenshot of administrative punishment of Dahua Accounting Firm)

Of course, Dahua was fined three times for financial fraud involving Zhangzidao, Changyuan Group, and Dongfang Jinyu, but only 3 of the 90 pieces of information that have been punished or supervised in total, and the rest are not shown in detail here.

Only these three fines, plus the fines related to gold psychic fraud, Dahua has been fined nearly 60 million, for its annual income of more than 3 billion, this scale does not seem to have much impact on it, but if you count the historical accumulation, it may have been fined hundreds of millions.

In recent days, more than a dozen A-share listed companies have announced the cancellation of audit cooperation with Dahua, and the good days of Dahua, the "A-share fraud accomplice", are coming to an end!

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