China moves to raise penalties on auditors as anti-fraud campaign deepens
Beijing’s draft amendment toughens rules and extends liability, after PwC’s Evergrande penalties underscore audit failures
A draft amendment to the Certified Public Accountants Law – set for a second reading at the 23rd session of the Standing Committee of the 14th National People’s Congress (NPC), China’s top legislative body – would raise the maximum fine for issuing false audit reports to 10 times the illegal gains, double the present limit. It would also allow for business suspensions, licence revocations and practice bans in serious cases.
The current law has been in force for more than 20 years. The draft amendment would further regulate professional conduct, curb audit fraud and bring order to the auditing profession, said Huang Haihua, a spokesperson for the standing committee’s Legislative Affairs Commission.
“Financial fraud by listed companies seriously undermines the fair order of the capital market, and could lead to a misallocation of resources, harm investors’ rights and interests, and even trigger systemic risk,” Huang said.
A key change would extend liability beyond the auditors who sign off on accounts to others in the chain of fraud. The draft would impose legal responsibility on clients, audited entities and other parties that collude with or instigate accounting firms or accountants to issue false reports.
It would also impose penalties on audited entities and related parties that supplied false accounting records or documents to accountants. Those whose violations constituted a crime would face criminal liability.
