China tightens oversight of accounting firms in battle against forgery

Shanghai/Beijing — China will tighten scrutiny over accounting firms in a fight against financial forgery, vowing “zero tolerance” towards misconduct, it said on Monday.

The guidelines, published by China’s State Council, or cabinet, come as Beijing launches a flurry of regulatory crackdowns against sectors ranging from internet to tutoring.

China will publish detailed rules on the supervision of accounting firms, and will increase the frequency of inspections, while stepping up punishment, the guidelines said.

Meanwhile, Chinese regulators will co-operate on cross-border supervision of accounting and auditing, in a bid to safeguard China’s economic and information security.

China is stepping up efforts to open its stock and bond markets to global investors, while channelling household deposits into the country’s capital markets to help fund innovation and economic growth.

But investors’ confidence has been dented in recent years by a slew of scandals, including high-profile accounting fraud by Kangde Xin Composite Material Group Co and Kangmei Pharmaceutical.

China’s State Council said on Monday that accounting firms have not fully played their role as “gatekeepers” of capital markets, which have often witnessed cases of financial forgery and inaccurate accounting information.

China will also crack down on misconduct including unlicensed accounting, online hawking of auditing reports, and leakage of confidential information, according to the guidelines.

The guideline did not provide specifics regarding cross-border co-operation, only saying the move would help enhance China’s international credibility and influence.

China’s securities watchdog said on Friday it will create conditions to co-operate with the US on auditing supervision.

Washington plans to delist Chinese firms listed in the US that fail to meet its auditing requirements.

Reuters