PwC has been banned from the market for six months, and many listed companies have announced the termination of cooperation with it, which will lead to changes in the competitive landscape of the audit industry.
Fined 440 million yuan and suspended for half a year!
Recently, PwC was subjected to the "maximum penalty," sparking heated discussions in the market.
The regulatory penalty has "settled the dust," and it has also served as a strong warning to various industries and their surrounding industrial chains, value chains, and interest chains.
The PwC incident has undoubtedly attracted high attention and trust concerns from all sectors regarding audit institutions.
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Under the trend of strict regulation in the capital market, the responsibility of the "gatekeeper" is consolidated, and the competitive landscape of the audit industry will change, while professional standards and quality urgently need to be reshaped.
In this process, many difficulties such as independence and cross-border audit supervision are still worth paying attention to.
Recently, the Ministry of Finance of China and the China Securities Regulatory Commission successively announced the penalty decisions against PwC: confiscation of illegal income and a fine totaling 441 million yuan, suspension of business operations for six months, and revocation of Guangzhou branch; the 11 involved certified public accountants were either revoked their certificates or warned and fined.
In the statement issued by PwC on the same day, it stated that it fully cooperated with the regulatory authorities' inspection work, respected and resolutely obeyed the relevant administrative penalty decisions; it has taken rectification and accountability measures.
Wu Bing, an associate professor at the School of Business of East China University of Science and Technology, said in an interview with the International Financial News that this penalty is a typical case of Chinese regulatory authorities regulating audit institutions that failed to fulfill their duties diligently, showing the determination of regulatory authorities to crack down on financial fraud and audit forgery, and to maintain market order.
"The penalty result of the Ministry of Finance and the Securities Regulatory Commission against PwC is indeed gratifying," said Han Wei, the general manager of Tai Shi Investment, in an interview, reflecting that the supervision is "sharp-toothed and thorny," not only promoting the continuous and healthy development of the certified public accountant industry but also playing a significant role in ensuring the successful operation of the stock registration system, which is conducive to boosting the confidence of investors in the securities market.
Looking forward to the next step, in accordance with the spirit of the "Answers to Questions on Handling Financial Fraud Crimes" issued by the Supreme People's Procuratorate, those intermediary organizations and personnel involved in financial fraud should be severely punished.
For PwC, the biggest loss is not the fine and practice restrictions, but the credit crisis, and the professional ability is questioned.
Guo Shi Liang, an independent financial commentator, believes that this heavy penalty on PwC also releases a strong regulatory signal to the market.
Gao Hui, the chief partner of Shanghai Guoling Law Firm, said in an interview with the International Financial News that the China Securities Regulatory Commission's penalty against PwC reminds people of the 2001 U.S. Securities and Exchange Commission's penalty against the accounting firm Arthur Andersen involved in the Enron incident, which ultimately led to the disintegration of Andersen.
From a legal perspective, Gao Hui analyzed that PwC was fined 440 million yuan for financial fraud of Evergrande Real Estate, in line with the 2019 new "Securities Law" regarding the legal provision of "confiscate one and fine ten," whether domestic or foreign audit institutions are equal before the law.
The 440 million yuan fine imposed on PwC this time also conforms to the basic legal principle of administrative penalties "punishment is equal to the crime."
It is based on the audit income of PwC in 2019 and 2020 multiplied by ten, the higher the audit business income of PwC serving Evergrande Real Estate, the higher the penalty.
"This is also the fundamental reason why the China Securities Regulatory Commission has always emphasized the need to respect the rule of law, professionalism, risk, and the market."
Consolidate the responsibility of the "gatekeeper" The capital market plays a role in the economy and financial operations.
This year, regulatory authorities have focused on strengthening the foundation, strict supervision, and strict management of the main tone, implementing the requirements of supervision "sharp-toothed and thorny," and cracking down on various illegal and irregular behaviors.
In April, the "Opinions on Strengthening the Supervision of Listed Companies (Trial)" mentioned the need to strengthen information disclosure supervision and severely punish performance fraud; in the same month, the "Several Opinions of the State Council on Strengthening Supervision and Preventing Risks to Promote High-Quality Development of the Capital Market" required strengthening information disclosure and corporate governance supervision, and seriously rectifying financial fraud, fund occupation, and other major illegal and irregular behaviors in key areas.
Under the "strict supervision" of the capital market, this year, more than 90 listed companies have been investigated.
Wu Bing said that this penalty against PwC has played a strong warning role in various industries and their surrounding industrial chains, value chains, and interest chains, once again releasing the central government's policy signal to strengthen high-quality development, improve the macroeconomic governance system, strengthen and improve modern financial supervision, strengthen the financial stability guarantee system, and legally include all kinds of financial activities under supervision, and guard against systemic risks.
At the same time, this year, as the "gatekeeper" of the capital market, accounting firms have received a significant increase in penalty notices.
According to incomplete statistics, so far this year, at least 15 accounting firms have received 18 administrative penalty decisions from the Securities Regulatory Commission or local securities regulatory bureaus, with a total of 39 certified public accountants being fined, and the total amount of fines and confiscations exceeding 480 million yuan.
For example, Daxin Accounting Firm was fined 6.0566 million yuan by the Securities Regulatory Commission for not fulfilling its duties diligently in the audit of Jinzhengda's annual report from 2015 to 2017, and two signing certified public accountants were each fined 50,000 yuan.
Cracking down on financial fraud and consolidating the responsibilities of intermediary institutions is a key link.
This penalty is not only a warning to PwC but also an important reminder to the entire audit industry, prompting audit institutions to pay more attention to the quality and service level of their practices.
Forcing the industry to improve quality As the most important gatekeeper of the capital market, the pressure faced by audit institutions is often huge.
Under the trend of increasing penalties for violations and strict supervision, accounting firms will also be forced to improve their practice quality and strengthen internal management.
"At present, the capital market is still in the stage of clearing illegal and irregular companies, and the chaotic market uses heavy penalties.
The capital market can only reshape the function of value discovery in the capital market after being thoroughly educated by the rule of law."
Gao Hui believes that the reshaping of audit institutions lies in who supervises the quality of the audit.
The current problems in the audit industry not only require the improvement of the risk control of audit institutions themselves but also should further consider building a system for lawyers to supervise the audit obligations, and comprehensively standardize the compliance of audit business procedures and business.
"To reshape the audit industry, it is not only necessary for each certified public accountant to adhere to the principles of independence, objectivity, and fairness, to maintain and improve their professional competence, but also to always put the protection of the interests of the public in the first place in the practice process, to adhere to the professional bottom line, to respect laws and regulations, and to resist the temptation of money."
Han Wei said.
PwC has been banned from the market for six months, and many listed companies have announced the termination of cooperation with it, which will lead to changes in the competitive landscape of the audit industry.
Guo Shi Liang said that regulating the audit business of listed companies and improving the professionalism and compliance of audit institutions is conducive to guiding the standardized development of the audit industry, continuously improving compliance and professionalism, and increasing the intensity of the industry's survival of the fittest.
At the same time, many difficulties in the long-term development of the audit industry are also worth further attention.
For example, the issue of independence is still a governance difficulty.
Wu Bing emphasized that audit institutions generally establish long-term cooperative relationships with companies, and factors such as customer pressure and economic benefits are easy to interfere with the independence and quality of the audit.
How to effectively maintain the independence of the audit and consolidate the professional ethics of the auditors is a long-term problem to be solved.
With the diversification of corporate business and the uncertainty of the market environment, the difficulty and complexity of the audit work are continuously increasing, and the huge amount and complexity of audit data bring challenges to the quality of the audit and audit supervision.
Wu Bing pointed out that how to effectively use new technologies such as artificial intelligence, blockchain, and large language models to improve audit efficiency and quality, to ensure the accuracy and reliability of the audit results, while ensuring data security and privacy protection, is an important challenge faced by the audit industry.
In addition, with the in-depth development of globalization, cross-border audit supervision has become a new difficulty.
The reporter learned from the interview that from the current global violations, not only are the cross-border audit supervision of enterprises difficult, but once cross-border audit institutions are linked with enterprises, it is more difficult to supervise issues such as cross-border money laundering and asset transfer.
How to strengthen cooperation with regulatory authorities in various countries, strengthen communication and exchanges with international organizations, and jointly combat cross-border financial fraud and audit forgery, to maintain the stability and healthy development of the global capital market, is an important issue for regulatory authorities in our country and other countries.