China Securities Regulatory Commission, Compilation Rules for Information Disclosures by Companies That Offer Securities to the Public No.14 ?Audit Opinions That Are Not Standard and Unqualified and the Handling of Relevant Matters

Issued: December 22 2001
Effective: as of date of issue
Interpreting authority: China Securities Regulatory Commission
Applicability: For the purposes of the Rules, an "audit opinion is that which is not standard and unqualified" means an audit opinion that is not a standard unqualified audit opinion, namely an unqualified opinion with explanatory notes, a qualified opinion (including qualified opinion with explanatory notes), a disclaimer of opinion or an adverse opinion (Article 2).

Main contents: The Rules provide that a registered accountant shall not issue explanatory notes in lieu of a qualified opinion or a qualified opinion in lieu of an adverse opinion. When a registered accountant issues an audit opinion on the financial report of a listed company that is not standard and unqualified, the audit report shall clearly state the reasons and bases of such an opinion and the estimated impact of the related matters on the financial report (Article 5). Where the company has obviously violated the accounting standards, rules or relevant information disclosure requirements and such violation would, if not rectified, cause the registered accountant to issue an audit opinion that is not standard and unqualified, the registered accountant shall point that out and request the company to make necessary adjustments (Article 6). If the company refuses to do so or if the adjustment is not adequate and the accountant consequently issues an audit opinion that is not standard and unqualified, the stock exchange shall suspend trading of the shares of the company (Article 7). During the suspension, the relevant matters will be investigated and dealt with by the China Securities Regulatory Commission (Article 8). If the matters that gave rise to the qualified opinion or adverse opinion will affect the profit of the company and the accountant has estimated the amount affected, the company shall deduct such amount from its distributable profit. If the accountant issues a disclaimer of opinion, the company shall not distribute its current year's profit (Article 10).
Related legislation: PRC, Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21 and PRC, Securities Law (Amended), Oct 27 2005, CLP 2006 No.1 p31