On July 24, China's Securities Regulatory Commission (CSRC) issued a penalty decision against Tian Jian Certified Public Accountants (Special General Partnership) and three certified public accountants (CPAs). The CSRC investigated the firm for failing to exercise due diligence in providing audit services to Hainan Poly Pharm Co., Ltd. (formerly stock code 300630, delisted in May 2025). The investigation found that Tian Jian and relevant individuals committed the following violations.
The CSRC determined that Tian Jian issued false audit reports for Poly Pharm's 2021 and 2022 annual financial statements. In a separate case, the CSRC found that from 2021 to 2022, Poly Pharm inflated revenue and profit by fabricating pharmaceutical sales and recognizing trade transactions where it lacked control using the gross method. Tian Jian, as the audit firm, issued standard unqualified audit opinions, earning total audit fees of 2.1 million yuan (excluding VAT). The firm failed to exercise due diligence, resulting in false audit reports. Signing CPAs for 2021 were Shi Qilin, Shen Xiaomin, and He Changjian; for 2022, they were Shi Qilin and Shen Xiaomin.
The CSRC found Tian Jian failed to exercise due diligence during the audits in several key areas. First, it did not maintain professional skepticism regarding abnormal conditions related to Poly Pharm's software systems and failed to obtain sufficient, appropriate audit evidence. Second, its revenue audit procedures were inadequate, including insufficient verification of revenue recognition and failure to investigate large red-ink write-offs. Third, its confirmation procedures were deficient, including poor control over the confirmation process and failure to investigate abnormal responses.
The CSRC ruled that Tian Jian, as the auditor for Poly Pharm's 2021 and 2022 financial statements, failed to diligently perform its duties per Chinese auditing standards, resulting in false audit reports. Shi Qilin, Shen Xiaomin, and He Changjian were identified as directly responsible supervisors. Shen Xiaomin and He Changjian argued they strictly followed audit standards, cooperated with regulators, and that penalties were too severe. However, the CSRC rejected their defenses, stating that evidence clearly proved the audit reports contained false statements and that they failed to exercise due diligence.
The CSRC imposed the following penalties: Tian Jian was ordered to rectify the issues, forfeit audit fee income of 2.1 million yuan, and pay a fine of 4.2 million yuan. Shi Qilin and Shen Xiaomin received warnings and were fined 600,000 yuan each. He Changjian received a warning and was fined 300,000 yuan.
Poly Pharm, which went public in March 2017, was delisted from the Shenzhen Stock Exchange on May 22, 2025, due to major violations of mandatory delisting rules triggered by financial fraud.
According to the Securities Law, the CSRC investigated Tian Jian for failing to exercise due diligence in providing audit services to Poly Pharm. The CSRC informed the parties of the facts, reasons, and legal basis for the penalties. Tian Jian and Shi Qilin did not submit statements or defenses, while Shen Xiaomin and He Changjian made statements and defenses but did not request a hearing. The case has been concluded.
The investigation confirmed that Tian Jian's audit reports for Poly Pharm's 2021 and 2022 annual reports contained false records. From 2021 to 2022, Poly Pharm inflated revenue and profit through fabricated drug sales and improper revenue recognition, leading to false annual reports. Tian Jian issued standard unqualified opinions, earning 2.1 million yuan in fees. The firm failed to exercise due diligence. Signing CPAs for 2021 were Shi Qilin, Shen Xiaomin, and He Changjian; for 2022, they were Shi Qilin and Shen Xiaomin.
Tian Jian's audit failures included: (1) Failing to maintain professional skepticism about abnormal software system conditions, not obtaining sufficient evidence. Poly Pharm used two software systems to record financial and business data in 2021 and 2022, with significant data differences between the systems. (2) Inadequate revenue audit procedures: The firm did not effectively verify logistics numbers obtained from Poly Pharm, and audit evidence was insufficient. Poly Pharm fabricated 436 million yuan in drug revenue in 2021 and 456 million yuan in 2022, with no actual goods delivered. Additionally, the firm failed to investigate large red-ink write-offs in 2022, which reversed 37% of 2021's fabricated revenue. (3) Deficient confirmation procedures: The firm did not maintain effective control over the confirmation process, failing to verify the authenticity of contact information provided by Poly Pharm. It also did not investigate abnormal responses, such as shared addresses or formatting issues.
Tian Jian's actions violated multiple Chinese auditing standards. The evidence, including audit agreements, working papers, financial reports, invoices, and testimonies, supported the findings. The CSRC ruled that Tian Jian violated the Securities Law, and Shi Qilin, Shen Xiaomin, and He Changjian were directly responsible. The CSRC rejected the defenses of Shen Xiaomin and He Changjian, stating their claims of strict compliance were insufficient.
The CSRC ordered Tian Jian to forfeit 2.1 million yuan in audit fees and pay a 4.2 million yuan fine. Shi Qilin and Shen Xiaomin received warnings and 600,000 yuan fines each, while He Changjian received a warning and a 300,000 yuan fine. The parties must pay the penalties within 15 days of receiving the decision and can apply for administrative reconsideration or file a lawsuit within the specified periods. The decision remains effective during any appeal.