Circular of the Ministry of Finance on Strictly Prohibiting Accounting Firms from Providing Auditing2023-11-16 15:20:25
Circular of the Ministry of Finance on Strictly Prohibiting Accounting Firms from Providing Auditing Services on a Contingent Fee Basis
Cai Kuai [203] No. 25
November 16, 2023
To the Finance Departments (Bureaus) of provinces, autonomous regions, municipalities directly under the Central Government, and cities specifically designated in the state plan; Financial Bureaus of the Xinjiang Production and Construction Corps; all local regulatory offices of the Ministry of Finance; and all accounting firms concerned:
To implement the Opinions on Further Strengthening the Oversight of Finance and Accounting issued by the General Office of the CPC Central Committee and the General Office of the State Council, and in accordance with the Administrative Measures for Practice Licensing and the Supervision of Accounting Firms (Order of the Ministry of Finance No. 97), and the relevant provisions in the code of professional ethics for Certified Public Accountants (CPAs), the following matters are hereby notified to effectively enhance the independence of accounting firms, prohibit contingent fees, and avoid adverse impacts on audit quality resulting from conflicts of interest:
1. Accounting firms shall, in accordance with their code of professional ethics and practice standards, reasonably determine audit fees based on the responsibilities, workload, and relevant resource inputs required for the audit undertaken, and sign compliant fee arrangements with clients.
2. Accounting firms are prohibited from providing audit services on a contingent fee basis, and fees, whether charged or not or their amount, must not be contingent on the audit outcome or the achievement of a specific objective. Contingent fees usually manifest in the form of IPO incentives, as well as partial or full payment of audit fees depending on factors such as the type of audit opinion issued, the attainment of a public listing or the issuance of bonds, etc.
3. Accounting firms shall, in accordance with their code of professional ethics and practice standards, implement the relevant procedures for accepting and retaining clients, and prudently assess the risks associated with clients making non-compliant payment requests. If accounting firms discover clients with contingent fee-related violations, they shall refuse to accept or terminate their audit engagement.
4. All provincial-level finance departments and local regulatory offices of the Ministry of Finance shall regard the issue of accounting firms charging contingent fees as a high priority to regulate and a focus for supervision and inspection. Accounting firms that fail to maintain independence in both form and substance, violating relevant requirements outlined in this Circular, shall be dealt with and subject to penalties in accordance with relevant laws and regulations.
5. This Circular shall come into effect on the date of issuance.
To implement the Opinions on Further Strengthening the Oversight of Finance and Accounting issued by the General Office of the CPC Central Committee and the General Office of the State Council, and in accordance with the Administrative Measures for Practice Licensing and the Supervision of Accounting Firms (Order of the Ministry of Finance No. 97), and the relevant provisions in the code of professional ethics for Certified Public Accountants (CPAs), the following matters are hereby notified to effectively enhance the independence of accounting firms, prohibit contingent fees, and avoid adverse impacts on audit quality resulting from conflicts of interest:
1. Accounting firms shall, in accordance with their code of professional ethics and practice standards, reasonably determine audit fees based on the responsibilities, workload, and relevant resource inputs required for the audit undertaken, and sign compliant fee arrangements with clients.
2. Accounting firms are prohibited from providing audit services on a contingent fee basis, and fees, whether charged or not or their amount, must not be contingent on the audit outcome or the achievement of a specific objective. Contingent fees usually manifest in the form of IPO incentives, as well as partial or full payment of audit fees depending on factors such as the type of audit opinion issued, the attainment of a public listing or the issuance of bonds, etc.
3. Accounting firms shall, in accordance with their code of professional ethics and practice standards, implement the relevant procedures for accepting and retaining clients, and prudently assess the risks associated with clients making non-compliant payment requests. If accounting firms discover clients with contingent fee-related violations, they shall refuse to accept or terminate their audit engagement.
4. All provincial-level finance departments and local regulatory offices of the Ministry of Finance shall regard the issue of accounting firms charging contingent fees as a high priority to regulate and a focus for supervision and inspection. Accounting firms that fail to maintain independence in both form and substance, violating relevant requirements outlined in this Circular, shall be dealt with and subject to penalties in accordance with relevant laws and regulations.
5. This Circular shall come into effect on the date of issuance.
