Photo/Shetuwang

July 29 (NBD) – Accounting firms are universally acknowledged as the public watchdog of companies, but Ruihua Certified Public Accountants ("Ruihua"), one of the largest Chinese accounting firms and qualified for the audit of A and H-share enterprises, has been uncovered to be a bomb in the country's capital market.

The review of four companies' applications to list on China's Nasdaq-like STAR market has been suspended, according to an announcement on the official website of Shanghai Stock Exchange on Sunday, as a result of an investigation against their accounting firm Ruihua over alleged financial fraudulence. 

The probe into Ruihua began earlier this month when its client Kangde Xin Composite Material Group (KDX), a Shenzhen-listed material technology firm, was found to have grossly exaggerated the profits by 11.9 billion yuan (1.7 billion U.S. dollars) from 2015 to 2018, possibly facing a mandatory retreat from the market. 

The accounting firm was thrown into a bigger swirl of public discussions last Friday when Shanghai-listed Furen Group Pharmaceutical Co., Ltd., another client of Ruihua, said it was under investigation due to violation of laws and regulations.

The investigation against Furen came after the company was reported to have failed to grant cash dividends of 62.7 million yuan, which is questionable as in the financial report for Q1 of 2019, the pharmaceutical company reported balance of whopping 1.8 billion yuan.

Regarding the KDX case, Ruihua made an announcement Sunday to defend itself. "Ruihua set up a special team for the audit of KDX this January, conducted comprehensive self-examination, and reported to the authority in time. We have fully fulfilled the duties and responsibilities," the accounting firm said. But as for questions concerning Furen, Ruihua hasn't yet made any response. 

National Business Daily noticed that the new suspensions on the STAR market have pushed the number of IPO applications affected by the Ruihua case to 35, and more than 13 listed companies including Wanda Cinemas have been forced to shelve their refinancing projects such as convertible bonds.

In fact, this is not the first time Ruihua is under such investigations.

As early as 2015, the company was issued a warning letter by the regulatory authority for its suspeced conduct of helping Furen conceal affiliate transactions. According to a report released last year by the Chinese Institute of Certified Public Accountants, from 2016 to 2018, five administrative penalties were imposed on Ruihua for misconducts with 10 certified accountants being punished.  

Email: lansuying@nbd.com.cn