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The audit firm Tianjian Certified Public Accountants was recently penalized by the China Securities Regulatory Commission (CSRC) with a fine and confiscation of 6.3 million yuan for failing to fulfill its due diligence obligations in auditing the annual reports of Polly Pharmaceutical (300630). Previously, Polly Pharmaceutical was forced to delist after inflating its profits by over 669 million yuan over two years. Although the company has been delisted, investors' claims have won first-instance court rulings, and the rights protection campaign is still ongoing.

Where to start

In late July 2026, a CSRC penalty notice brought the other main player in the Polly Pharmaceutical financial fraud case into the spotlight. An investigation found that when providing audit services for Polly Pharmaceutical's 2021 and 2022 financial reports, Tianjian Certified Public Accountants not only issued audit reports containing false records but also failed to exercise due diligence during the audit process.

The investigation revealed several serious derelictions of duty in Tianjian's audit process:

1. Failure to identify software system anomalies: Polly Pharmaceutical simultaneously used two sets of software systems to record financial and business data, which showed huge discrepancies. Tianjian did not maintain professional skepticism or conduct effective verification.

2. Revenue audit procedures were perfunctory: They failed to effectively verify logistics information, leading to undetected fabricated drug revenue worth hundreds of millions of yuan (with no real logistics). They also did not pay sufficient attention to frequent large-scale red-ink revenue write-offs, which accounted for 23% of total revenue.

3. Loss of control over confirmation procedures: They failed to maintain professional skepticism regarding numerous anomalies in the sending and receiving of confirmation letters, such as the sender being a Polly employee, the return address being a residential neighborhood, and different clients' return contacts sharing the same contact information.

Given these illegal facts, the CSRC decided to order Tianjian to rectify the issues, confiscate business income of 2.1 million yuan, and impose a fine of 4.2 million yuan. The signing certified public accountants, Shi Qilin and Shen Xiaomin, were issued warnings and fined 600,000 yuan each, while He Changjian was issued a warning and fined 300,000 yuan.

Why just 10 ASX 200 shares?

The root cause of the audit firm's punishment lies in the severe financial fraud of Polly Pharmaceutical. According to facts verified by the CSRC, between 2021 and 2022, Polly Pharmaceutical engaged in extremely egregious financial fraud by fabricating drug sales and accounting for trade transactions over which it had no control using the gross method. Specific illegal data are as follows:

2021 Annual Report: Inflated operating revenue by approximately 515 million yuan (accounting for 34.11% of the reported operating revenue for that period) and inflated total profit by approximately 308 million yuan (accounting for 65.88% of the reported total profit for that period).

2022 Annual Report: Inflated operating revenue by approximately 516 million yuan (accounting for 28.56% of the reported operating revenue for that period) and inflated total profit by approximately 387 million yuan (accounting for 88.27% of the reported total profit for that period).

The total inflated profits over these two years amounted to a staggering 669 million yuan, representing 73.83% of the combined total reported profits for the two years. This behavior constituted a major securities misrepresentation and triggered the mandatory delisting conditions for major violations. Polly Pharmaceutical's stock was officially delisted on May 22, 2025. Investor claims arising from this incident are also proceeding in an orderly manner. The Haikou Intermediate People's Court has issued a first-instance judgment in the series of cases, determining that Polly Pharmaceutical must compensate investors for their losses, resulting in a victory for the investors.

Investor Rights Protection Requirements

Lawyer Liu Peng from Shanghai Huzi Law Firm stated that the penalty imposed on the audit firm not only proves the intermediary's misconduct but also provides strong evidence to support investors' claims. According to the court's ruling, investors who bought shares between April 26, 2022, and April 16, 2024, and sold them after April 17, 2024, or still hold them at a loss, are eligible to join the rights protection action. Under Article 163 of the Securities Law, if an audit firm cannot prove it is without fault, it shall bear joint and several liability for compensation with the issuer. Therefore, Tianjian can be named as a co-defendant in this case and required to fulfill its compensation obligations.

Some investors worry that after delisting, the company has no money to pay. It is important to clarify that although Polly Pharmaceutical has been delisted, the company itself, as a legal entity, has not been dissolved and is still operational. As a large accounting firm, Tianjian has strong solvency. Once it is named as a defendant, the enforcement of a favorable judgment is assured. Given the existing first-instance verdict, the subsequent rights protection process will be smoother. Eligible investors are advised to prepare account statements and account opening certificates for claim registration. The legal team will uniformly submit the case materials to the Haikou Intermediate People's Court.