China Securities Regulatory Commission’s Hebei office imposes CNY 242.7723 million penalty on Zhongxingcai Guanghua for deficient audits linked to Dongxu entities

The China Securities Regulatory Commission’s Hebei office issued an administrative penalty against Zhongxingcai Guanghua for failing to exercise due diligence in audits of annual reports and in work supporting equity and bond issuances for Dongxu Group, Dongxu Optoelectronics and Dongxu Blue Sky. The bureau confiscated all related business income of CNY 32.5849 million and imposed a fine of CNY 210.1874 million, for a combined penalty of CNY 242.7723 million; six responsible individuals were fined between CNY 0.1 million and CNY 4.3 million, and two individuals were banned from the securities market for 10 years and five years. The investigation found the firm’s risk assessment procedures were perfunctory and that it had major deficiencies across key audit procedures, including cash, the sales and collections cycle, and the procurement and payments cycle. It did not maintain professional scepticism or carry out further audit procedures in response to multiple red flags, including abnormally large prepayments and supplier payments processed using internal approval forms. Zhongxingcai Guanghua issued a range of audit opinions covering 2015–2020 annual reports and also produced statements for the issuance of the “18 Dongxu 01” and “18 Dongxu 02” bonds and Dongxu Optoelectronics’ 2017 non-public share issuance that certified the financial data as true, accurate and complete; the documents were found to contain false records. In handling the case, the CSRC coordinated with the Ministry of Finance, which had already imposed an administrative penalty suspending Zhongxingcai Guanghua’s business operations that covered securities-related work; the Hebei office therefore did not separately impose a suspension from securities services.