China is preparing to significantly increase penalties on auditors who approve falsified financial statements, expanding its drive against financial misconduct among listed companies.
According to a South China Morning Post (SCMP) report, a revised draft of the Certified Public Accountants Law is scheduled for a second reading by the National People’s Congress Standing Committee, the country’s legislative authority.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
The proposal would raise the ceiling on fines for the issuance of false audit reports to up to ten-times the illicit gains involved, doubling the current maximum.
In serious breaches, authorities would also be empowered to suspend business operations, revoke practice licences and impose bans on practising.
The current law has been in place for more than two decades.
The Standing Committee’s Legislative Affairs Commission spokesperson Huang Haihua was quoted by the publication as saying: “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.”
The spokesperson added that the revised law is aimed at regulating professional conduct, preventing audit fraud and bringing order to the auditing sector.
One of the main changes is the expansion of liability beyond the individual auditors who sign the reports.
Under the draft, legal responsibility would extend to clients, audited companies and other parties that “collude with or instigate accounting firms or accountants to issue false reports”, the SCMP added.
The proposals also envisage penalties for audited entities and related parties that provide false accounting records.
Where the conduct amounts to a criminal offence, those involved would face criminal prosecution.
The legislative move follows a string of regulatory actions against accounting practices.
In April, the Ministry of Finance and the China Securities Regulatory Commission (CSRC) fined Zhongxingcai Guanghua Certified Public Accountants 252m yuan ($37.2m) and ordered a one-year suspension of the company’s operations.
Separately, PwC’s mainland unit, PwC Zhong Tian, was fined a combined 441m yuan by the Ministry of Finance and the CSRC in September 2024 over audit failures linked to the fraud case at property developer China Evergrande Group.
