Further Discussion On The "Chaos" Of Audit Practice: On The Improvement Of Audit Report Quality From The Perspective Of "Establishing System"

From the day of its birth, accountants shoulder the important responsibilities of checking mistakes and preventing malpractices, safeguarding the rights and interests of investors and the interests of the public. Since 1980, China's CPA industry has been restored and rebuilt, and many A-share listed companies have been suspended or terminated due to their inability to express their opinions. Over the past 40 years, the Certified Public Accountants (CPA), who are known as the "gatekeeper" of accounting information quality, have become an important link in the credit chain of China's market economy. However, from the perspective of the administrative supervision measures taken by the regulatory authorities on 8 audit institutions and 28 CPAs in 2020, problems such as insufficient basis and inappropriate type of non unqualified opinions are still prominent, and the practice quality of audit institutions is still worthy of attention.

Recently, CICPA and China Securities Regulatory Commission (CSRC) have successively issued the No.16 answer to questions on auditing standards for Chinese Certified Public Accountants - non unqualified opinions in audit reports (hereinafter referred to as "No.16") and "guidelines for the application of regulatory rules audit category No It also gives guidance on the issues of substitution and "ignoring" the non-standard audit opinions of the previous period, and clarifies the key points for the rectification of the "chaos" of the non-standard opinions.

Audit procedures "limited" on the ground of random throwing pot

According to the auditing standards, whether accountants obtain sufficient and appropriate audit evidence determines whether the unqualified opinions are "misstatement" or "restricted". From the practice of A-share market over the years, the "limited" opinion is absolutely dominant. According to statistics, in 2019, only one A-share listed company was issued with negative opinions. Before that, there was no negative opinion in the A-share market for more than ten years, and the reserved opinions were mostly "restricted" opinions.

Using "restriction" to cover up "misstatement" is like an accountant trying to stop talking. The company has problems, but it is not clear what the problems are. Specifically speaking, accountants seem to be used to avoid directly attacking the company's misstatement on the ground of "uncertainty" of relevant matters or under the circumstances of being able to carry out further audit procedures and obtain audit evidence, and then "cover up" their own inaction. For example, the audit report of a listed company engaged in gold and jewelry processing in 2019 is issued with qualified opinions, which mainly involves the financial leasing of subsidiaries, the recognition of entrusted loan income and the provision for asset impairment. However, the annual audit accountant only uses a simple sentence "unable to obtain sufficient and appropriate audit evidence" as the basis of audit opinion, and lacks sufficient information on the reasons and situations of specific "restrictions" In addition, the authenticity of the "restricted" causes public investors to doubt, and the usefulness of the company's financial statements is also questionable.

In fact, the real "restriction" should be that the listed companies or related parties refuse to cooperate with the audit under the premise that the relevant audit procedures have been fully implemented according to the requirements of audit standards, or the audit related matters have exceeded the audit authority, or the existing audit methods lead to the inability of accountants to obtain sufficient and appropriate audit evidence. For example, the audit report of a listed company in the electrical equipment industry in 2019 clearly points out that due to the serious staff loss and management confusion of a subsidiary, some of the original senior executives of the company's subsidiaries involved in capital occupation can not be contacted, so they can not obtain sufficient and appropriate audit evidence to exclude whether there are other fund occupation not identified.

The guidelines further compact the accountant's responsibility by strengthening the information disclosure of the "restricted" specific circumstances. It requires accountants to fully disclose the formation process and reasons of the "restricted" matters in the audit report and the special description of non-standard opinions, and the amount of possible impact of the "restricted" matters on the company's financial situation, operating results and cash flow. If it is not feasible, it should also explain whether it is not The reasons for the feasibility, etc. In the face of some uncertain matters or superficial restricted situations, accountants should "think of ways, take responsibility bravely and dare to act", expand the scope of audit, enhance the substitutability and unpredictability of audit procedures when necessary, rather than avoid making substantive judgments; for the audit evidence content that "restricted" matters cannot obtain, what kind of audit evidence should be considered to solve“ Limited ".

The edge ball of "significance" and "universality"

The key to determine the type of non unqualified audit opinion is whether the relevant matters have significant and extensive influence. Before the new delisting rules were issued, only negative opinions and non expressing opinions were directly linked with delisting. Qualified opinions seemed to have become the "safe haven" for accountants, which revealed the company's risk to the market to a certain extent, but it would not lead to the company's delisting risk warning or delisting, resulting in the phenomenon of replacing negative opinions with reserved opinions or unable to express opinions.

If there is no substantial change in the non-standard opinions of individual companies in the past two years, but the type of audit opinions has been "degraded", the extensive influence of non-standard matters has disappeared "quietly". The financial reports of a company with clean energy as its main business in 2018 and 2019 were respectively issued with no opinions and reserved opinions. The company's non-standard opinions for two years involved the recoverability of the capital occupation fund of 1.165 billion yuan of the controlling shareholder. The company did not make any bad debts in 2018, and fully accrued the bad debts in 2019. The accounting treatment of the above bad debts will affect the net profit of the company for two years When replying to the inquiry of Shenzhen Stock Exchange, the accountants thought that the above matters were only limited to specific subjects and did not have universality. In addition, some companies' audit opinions are embodied in the "mixture" of "qualified opinions + major uncertainty paragraphs related to going concern + stressed matters", and it is suspected that the audit opinions with extensive influence can be replaced by adding relevant explanatory events.

Importance and extensiveness are the "two rules" to judge what kind of non-standard opinions are issued. In the final analysis, the substitution of audit opinion types is the "edge ball" of importance and universality. The guidelines have added information disclosure requirements for "importance level" and extensive judgment process, which greatly improves the transparency of professional judgment. "Answer No. 16" clearly states that if the accountant finds a number of material misstatement that affects multiple financial statement items, or even though it only affects specific elements, accounts or items of the financial statements, but may be the main part of the financial statements, it is generally considered that these material misstatements have extensive impact on the financial statements.

Non standard comments in the early stage

In practice, some listed companies changed their offices after being issued with non-standard opinions in the previous year. However, the current accountants pay less attention to the issues involved in the non-standard opinions of last year and the impact on the current financial statements. However, due to the continuity of the non-standard opinions in the previous year, the quality of the current audit report will be weakened to a certain extent if the resolution of the non-standard opinions in the previous period is not fully considered.

If a beer company is unable to judge whether a long-term equity investment needs to be withdrawn for impairment in 2018, it can not express its opinion. In 2019, the accountant obtained sufficient and appropriate audit evidence to judge that the above-mentioned long-term equity investment has been impaired in full. However, due to the uncertainty of the amount at the beginning of the year, the accountant can not reasonably guarantee that the above impairment loss will be included in the current profit and loss, and issued the audit opinion with qualified opinion. For the same matter and different types of audit opinions, the subsequent accountants did not express clear opinions on whether the above impairment exists inter period accrual or not. In a more extreme case, the type of audit opinion of a listed company in energy conservation and environmental protection industry changed from unable to express opinion to qualified opinion in a short period of one week, and did not make clear whether the last non-standard opinions were eliminated.

The guidelines specify that accountants need to disclose the judgment process and conclusion of the elimination or change of non-standard matters in the previous period in the current period, and evaluate the impact on the opening balance of the current period and the audit opinions of the current period. In fact, in most cases, unless the non-standard issues of the previous year have been resolved, or the relevant audit scope constraints have been eliminated, accountants still need to express non unqualified opinions.

The release of "answer No. 16" and "guidance" is only a microcosm of the regulatory authorities to strengthen the supervision of intermediaries. As a matter of fact, the regulatory authorities have a consistent regulatory attitude and crackdown on financial fraud and other major violations of the capital market.

Recently, in his keynote speech at the round table meeting of the China Development Forum, chairman of the China Securities Regulatory Commission, Yi Huiman pointed out that under the background of the registration system reform, many intermediary agencies have not really possessed the concept, organization and ability to match the registration system, and are still "wearing new shoes and taking the old road". Only when there is "ice breaking" in thought, can there be "breakthrough" in action. Only when accounting firms and other intermediary organizations have a better understanding of the current regulatory situation and truly realize the original intention and mission of the auditor profession from the day of its birth, an audit opinion is not only related to the authenticity of a statement, but also an important embodiment of whether the accounting firm can stick to the audit practice bottom line and perform the "gatekeeper" responsibility of the capital market In strict accordance with the relevant provisions, diligent and conscientious, and strive to improve the quality of practice, the good ecology of the capital market can be more healthy and lasting.