SHANGHAI, CHINA: A local accounting firm is being accused of fabricating verification reports on its customers' registered capital, in a case that may deliver the first criminal punishment for such a crime in the city.
Huang Wengui, a certified public accountant, and also a legal representative of Shanghai Shencheng Accounting Co, Ltd, was arrested along with another suspect, Yan Jijun.
At the hearing held at Huangpu District People's Court Tuesday afternoon, prosecutors alleged that with Huang's permission, Yan received blank report forms with the firm's stamp and Huang's personal seal during the period between August 2000 and February 2001.
As related laws and regulations stipulated, before a company is established, it must provide its registered capital to a qualified accounting firm for verification.
According to the prosecutors, Yan then provided these sheets to customers without any capital. The operation helped some 133 customers to get approvals from local industrial and commercial bureaux and then register as companies.
“Yan said that he got hold of over 330 such blank sheets, but only 133 have been traced so far,” said Zhao Yinghua, a prosecutor.
“Of the 133 companies, 11 were recorded with a registered capital of more than 10 million yuan (US$1.21 million) respectively, with another 30 boasting a registered capital of more than 1 million yuan (US$121,000).”
The two accused allegedly received a total of 300,000 yuan (US$36,300) from the illegal business.
According to current Criminal Law, if accountants intentionally fabricate capital verification reports, and if their operations constitute severe violations, the accountants may be given a jail term of no more than five years.
Last September, a local Beijing court sentenced an accountant to two-year imprisonment for fabricating such reports.
The tougher sentencing is a move from the past, when punishment was limited to fines or loss of licence.
Ye Zhilin, an attorney for Huang, said that Huang only provided the blank sheets with stamps, no proof of any violation.
“Providing blank sheets does not necessarily lead to providing false reports,” said Ye.
He also mentioned that such activity is not rare in the accounting field.
Yinguangxia, a listed company, was found to have been involved in stock fraud in 2001, and its accounting firm was found to be fabricating profit reports. The scandal also ignited a heated discussion on honest operation.
“The government has paid attention to the problem, and tough punishment including criminal penalties is aimed to ensure better regulation of the market,” said Li Ruoshan, a professor from the Accounting Department of Fudan University.
“These illegal operations would greatly affect the order of the economic market, which may even result in further cheating.”