China's Ministry of Finance issued an administrative penalty for cross-border accounting audit supervision for the first time on Wednesday, with a China-based subsidiary of a Malaysian-listed company and an accounting firm that provided audit services held accountable according to law.

According to a memorandum on bilateral cooperation and at the request of the Malaysian side to assist in the investigation, China launched an investigation into the Fujian Accsoft Technology Development Co Ltd, a subsidiary of Malaysian listed company, Oriented Media Holdings Ltd, and the Shandong Branch of Zhongxingcai Guanghua Certified Public Accountants.

The ministry said the 2016-2018 financial report of Fujian Accsoft Technology Development Co was seriously falsified and constitutes a suspected crime. Because of the "severe lacking" of audit procedures, the Shandong Branch of Zhongxingcai Guanghua Certified Public Accountants should take major responsibility for the audit of the 2018 financial statement.

According to public information, Fujian Accsoft's operating income between 2016 to 2018 was 27 million yuan ($ 4 million), 133.4 million yuan ($ 19.7 million), and 151.7 million yuan ($ 22.5 million), for each year, with a net profit of 19 million yuan ($ 2.8 million), 30.3 million yuan ($ 4 million), and 30.9 million yuan ($ 4.5 million) respectively. At the end of 2018, bank deposits of the firm were 130 million yuan ($ 19.3 million), and wealth management products were held at 50 million yuan ($ 7.4 million).

99 percent of Oriented Media's income comes from Fujian Accsoft Technology Development Co.

The inspection found that the subsidiary continued to see losses from 2016 to 2018. The company had no more than five employees during the time and the annual operating income never exceeded 60,000 yuan ($ 8,910) and total losses were 30,100 yuan ($ 4,619), 46,000 yuan ($ 6,832), and 86,200 yuan ($12,211) respectively. At the end of 2018, the firm's bank deposits were less than 50,000 yuan ($ 7,427) and did not hold any wealth management products. 

Relevant audit reports, as well as the 2018 annual bank report, inquiry letters, bank statements, purchase and sales contracts and other supporting documents the subsidiary provided, were fake.

According to online business information provider, Tianyancha, Fujian Accsoft Technology Development Co was established in March 2015 with a registered capital of about $10 million. Its business scope included software development, internet information services, enterprise management and consulting services. The company was dissolved in May this year.

Relevant personnel from the firm has been put under compulsory measures on bail pending trial.

The Ministry of Finance issued a warning to Zhongxingcai Guanghua Certified Public Accountants, confiscated 60,000 yuan ($ 8,912) of illegal income, imposed an administrative penalty of 300,000 yuan ($44, 566), and revoked the CPA certificate of accountant Meng Xiang who gave his signature.

China's Finance Ministry said it will maintain "strict supervision and zero tolerance" to curb financial fraud, standardize the order of financial auditing and unswervingly increase the quality of accounting information and practice by firms, and continue to deepen cross-border exchanges with relevant countries and regions as well as to jointly promote the high-quality development of the Belt and Road Initiative.

In August last year, the State Council, China's cabinet, said it will engage in cross-border accounting and auditing cooperation according to laws and regulations. 

In the guideline, the State Council noted that China should cooperate with overseas countries in auditing and accounting supervision, safeguard China's economic information security and companies' legitimate rights and enhance China's global credibility and influence.