China News Service, Beijing, November 11 (Reporter Zhao Jianhua) China's Ministry of Finance announced on November 20 that accounting firms are strictly prohibited from providing audit services in the form of contingent fees to avoid adverse effects on audit quality due to conflicts of interest.
In a circular released on the same day, the Ministry of Finance asked accounting firms to strengthen their independence and prohibit contingent fees. Whether or not an accounting firm charges or how much it charges shall not be conditional on the results of the audit work or the achievement of a specific purpose. Contingent charges are usually expressed in the form of listing incentive fees, as well as partial or full audit fees charged depending on the type of audit opinion, whether the listing can be realized, whether the bond issuance can be realized, etc.
The Ministry of Finance requires accounting firms to reasonably determine audit fees in accordance with the provisions of the Code of Professional Ethics and Practice Standards, based on the responsibilities and workload of the audit work, as well as the relevant resources required, and sign the terms of the compliant fee arrangement with the client. If the client is found to have any payment violations, the accounting firm shall refuse to undertake or terminate the audit business.
The Ministry of Finance also requires the provincial-level financial departments and the local supervision bureaus of the Ministry of Finance to regard contingent fees as the key matters in the supervision and inspection of accounting firms. Accounting firms that violate the relevant requirements of the notice and fail to maintain formal and substantive independence shall be punished in accordance with the relevant provisions.
Prior to the above-mentioned provisions made by the Ministry of Finance, the Chinese Institute of Certified Public Accountants (CICPA) was concerned that in the information publicity of the winning candidates selected by individual companies to be listed on the stock exchange, the IPO audit quotation included pre-audit fees and listing incentives, and most of the audit fees depended on whether the company was listed or not, constituting contingent charges and undermining the independence of the accounting firm. The China Note Association immediately interviewed the person in charge of the relevant accounting firm, and reminded the certified public accountants who undertake the business of the company to be listed on the stock market to be the "gatekeeper" of the capital market, give full play to the role of the accounting firm in practice supervision, and ensure independent, objective, fair and standardized practice. (ENDS)