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AboutShijiazhuang Tonghe Electronic Technology Co., Ltd. is a high-tech enterprise dedicated to technological innovation, product innovation, and management innovation in the power electronics industry. It integrates R&D, manufacturing, sales, and service in the power electronics sector, providing customers with comprehensive energy solutions. -
ProductAfter more than two decades of rapid development, the company has established an industrial structure centered around three major business segments: smart grids, new-energy vehicles, and aerospace. Its sales network covers over 30 provinces, municipalities, and autonomous regions across China, and its products are exported overseas, earning unanimous praise from both domestic and international customers.
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PartnerIn the future, the company will continue to uphold its corporate mission of “embracing an entrepreneurial spirit, focusing on power electronics, efficiently utilizing energy, and serving global users,” while adhering to the core values of “contribution, mutual benefit, gratitude, efficiency, and innovation” to provide users with high-quality products and services.
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BlogsCommunicate with sincerity and courageously take responsibility; keep the customer at the center of our focus, continuously optimize the company’s management systems and processes, consistently identify and meet customer needs, deliver and enhance customer value, and maintain the company’s rapid growth.
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Join usThe company consistently upholds a talent philosophy centered on “people first,” actively fostering an atmosphere of respect, understanding, integrity, and friendliness. We provide a robust platform for talent development, enabling our employees to become powerful pillars of the company’s sustained growth and achieving mutual growth and shared success between the company and its talents.
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InvestorDisclose information relevant to investors’ decision-making in a truthful, accurate, complete, timely, and fair manner; strengthen communication and engagement with investors; and enhance and improve investor relations management.
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ContactWith a spirit of self-respect, self-reliance, and relentless self-improvement, coupled with an open mind, we focus on customer needs based on continuous learning and absorption. We dare to take risks, keep exploring, and steadily build management models and technological products that reflect our unique characteristics.
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Pay attention to audit opinions and understand listed companies.
Release time:
Mar 15,2022
Source: Compiled from the Investor Education Base of the Shenzhen Stock Exchange
Editor's Note:
In the era of big data, a critical challenge facing investors is how to discern the essence of things from a financial perspective and leverage this insight to enhance their investment success rates. To help investors improve their financial expertise and sharpen their financial analysis and judgment skills, the Shenzhen Stock Exchange Investor Education Center has specially launched the “Financial Knowledge at a Glance” series of investor education articles. This is the first article in the series, intended as a reference for investors.
Pay attention to audit opinions and understand listed companies.
Shenzhen Stock Exchange Investor Education Center
Following the release of the 2017 annual reports, the number of listed companies receiving non-standard audit opinions on their financial statements reached a new high in recent years. Moreover, with the recent delisting of *ST Enecarbon due to an audit opinion expressing inability to form an opinion, investors have become highly concerned about the implications of audit opinions and their impact on listed companies.
I. What is an Audit Opinion on Financial Statements?
As the most important document for information disclosure by listed companies, financial statements comprehensively reflect the company’s financial position, operating results, and cash flows over a specific period. They serve as a crucial basis for investors to understand the company’s profitability, operational efficiency, solvency, and growth potential, playing an indispensable role in guiding investors’ decision-making. So, how can we ensure the reliability and fairness of the financial information disclosed by listed companies? This is precisely where independent third-party institutions with professional qualifications—namely, accounting firms—come into play.
The “Rules Governing the Listing of Stocks” stipulate that the financial accounting reports included in a listed company’s annual report must be audited by an accounting firm qualified to engage in securities and futures-related business. Based on the audit procedures performed in accordance with auditing standards, the accountant shall form an audit opinion on whether the financial statements have been prepared in all material respects in accordance with the applicable financial reporting framework and fairly present the financial position and performance. Simply put, the audit opinion reflects, to a certain extent, the fairness and reliability of the financial statements.
II. What are the different types of audit opinions?
According to the regulations of the China Securities Regulatory Commission, audit opinion types are categorized as unqualified opinion, unqualified opinion with explanatory notes, qualified opinion, disclaimer of opinion, and adverse opinion. Among these, the latter four types of audit opinions are classified as non-standard audit opinions. From the perspective of the auditor’s level of assurance, the order from highest to lowest is:
First is the unqualified opinion, which carries the highest level of assurance. It indicates that the accountant believes the financial statements have been prepared in accordance with the applicable financial reporting framework in all material respects and fairly present the financial position and performance. The vast majority of companies receive an unqualified audit opinion on their financial statements.
Second, there is an unqualified opinion accompanied by explanatory notes. While this is an unqualified opinion, it includes matters that require clarification—for example, significant uncertainties regarding going concern or material misstatements in information that have not been corrected.
Third, the qualified opinion indicates that the accountant believes the misstatements, taken individually or in aggregate, have a material impact on the financial statements but are not pervasive. Alternatively, the accountant is unable to obtain sufficient appropriate audit evidence to form a basis for an audit opinion, and any undetected misstatements (if they exist) could have a material impact on the financial statements but are not pervasive.
Fourth, an “unable to express an opinion” qualification indicates that the accountant has been unable to obtain sufficient appropriate audit evidence to serve as the basis for forming an audit opinion; however, the accountant believes that any undetected misstatements (if they exist) could have a material and pervasive effect on the financial statements.
Option 5 represents a qualified opinion, indicating that the accountant believes the misstatements, either individually or in the aggregate, have a material and pervasive effect on the financial statements.
III. The Impact of Audit Opinion Types on Listed Companies
If the financial statements of a listed company receive an audit opinion stating “unable to express an opinion” or “adverse,” investors will find it extremely difficult to obtain reliable information about the company’s operational status and profitability from these financial statements. At the same time, such an audit opinion strongly suggests that the company’s information disclosure is highly likely to contain material misstatements, misleading representations, or significant omissions, thereby constituting a serious violation of the principles and requirements for information disclosure set forth in the Stock Listing Rules. Consequently, the Stock Listing Rules designate audit reports containing an “unable to express an opinion” or “adverse” opinion on a company’s financial accounting reports as one of the key indicators triggering risk warnings, suspension of listing, or even termination of listing for the company’s shares. This provision plays a crucial role in encouraging companies to prepare their financial statements truthfully, accurately, and in compliance with applicable financial reporting standards, thus providing investors with authentic and reliable information for decision-making.
Take, for example, the recent case of *ST Enecarbon: After its listing was suspended, the company’s first annual financial accounting report received an “unable to express an opinion” audit report from its accountant, thereby triggering the provisions of Article 14.4.1 of the “Stock Listing Rules.” In accordance with the law and regulations, the Shenzhen Stock Exchange has therefore made a decision to terminate the company’s stock listing.
If accounting is a language, then the audit opinion is the “fair reflection” of that language. Only by fully understanding the implications and significance of the audit opinion can investors truly “decipher” listed companies and become rational investors.
(Contributed by the Shenzhen Stock Exchange Accounting Professional Technical Group)
(Disclaimer: This article is published solely for the purpose of investment education and does not constitute investment advice. Investors who act upon this information do so at their own risk. The Shenzhen Stock Exchange strives to ensure that the information contained in this article is accurate and reliable, but makes no warranty as to its accuracy, completeness, or timeliness, and assumes no liability for any losses arising from the use of this article.)
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