Abstract
Using two state-owned enterprises’ financial fraud cases, Nanjing Zhongbei Group Co., Ltd. and Nanjing Textiles Import & Export Corp., Ltd., which were audited by the same local CPA firm, we found that the auditors of the two companies were almost the same and the fraud time of the two companies was close. We further analyze the reasons why the CPA firm still issues standard opinions for such fraud and “sick” auditors violate again. Finally, we propose some policy suggestions.
Highlights
In 2010, the China Securities Regulatory Commission punished Nanjing Zhongbei Group Co., Ltd., a local state-owned enterprise, for its illegal information disclosure
The two companies’ fraud time was relatively long and the amount of money was huge, especially Nanjing Textiles Import & Export Corp., Ltd., whose inflated profits were more than 300 million yuan from 2006 to 2010, but the auditors didn’t find any problems and still issued standard opinions
Nanjing Zhongbei Group Co., Ltd., founded in 1979, mainly engages in public passenger transport. It listed on the Shanghai Stock Exchange in 1996.The actual controller of the company is Nanjing State-owned Assets Supervision and Administration Commission, so the company is a local state-owned enterprise
Summary
In 2010, the China Securities Regulatory Commission punished Nanjing Zhongbei Group Co., Ltd., a local state-owned enterprise, for its illegal information disclosure. In 2014, the China Securities Regulatory Commission punished Nanjing Textiles Import & Export Corp., Ltd., another local state-owned enterprise, for its inflated profits. The financial reports of listed companies must be audited by the CPA firm. The two companies’ fraud time was relatively long and the amount of money was huge, especially Nanjing Textiles Import & Export Corp., Ltd., whose inflated profits were more than 300 million yuan from 2006 to 2010, but the auditors didn’t find any problems and still issued standard opinions. This study enriches the research field of the audit quality of local CPA firms and provides new evidence. It is a huge obstacle for the healthy development of the China capital market.
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