China Strengthens Accounting Laws Significantly... Fines Up to 10 Times the Profit for Accounting Fraud

Significantly Raising the Fine Cap and Issuing 'Warnings'
Preventing Recurrence of Evergrande Accounting Fraud Cases

China has significantly strengthened penalties related to accounting manipulation and financial fraud. If illegal profits exceed 200,000 yuan (approximately 37.9 million KRW) through practices such as earnings manipulation, fines up to ten times the amount of the illegal gains will be imposed, signaling a tough crackdown.

According to local media including China’s First Financial Daily, a new accounting law that greatly increases penalties for illegal activities related to accounting and financial fraud will take effect from the 1st. The 10th meeting of the 14th Standing Committee of the National People's Congress (NPC) revised 15 articles of the "Accounting Law of the People's Republic of China."

The amendment stipulates that if accounting book manipulation, false financial accounting reports, concealment or intentional destruction of supporting documents and books are confirmed, all illegal profits will be recovered and fines up to ten times the amount of the profits will be imposed.

In cases of forged financial reports, fines ranging from 200,000 yuan to 2 million yuan will be imposed, and if illegal profits exceed 200,000 yuan, fines up to ten times the amount of the illegal gains must be paid. This is a significant increase from the previous maximum fine of 100,000 yuan under the former accounting law. The maximum fine for those directly responsible for accounting manipulation has also increased 40-fold, from 50,000 yuan to 2 million yuan.

Additionally, the revised accounting law imposes fines between 1 million yuan and 5 million yuan on accounting institutions or their employees who instruct or order the forgery or alteration of documents and books. Public officials will also be punished according to the law.

Li Meiyun, a professor at China University of Political Science and Law, explained, "The revised new accounting law (Article 41) strengthens the types of administrative penalties for confiscating illegal gains, and significantly increases fines for related personnel."

Wang Huayue, deputy director of the Fiscal and Tax Law Research Center at Shanghai Jiao Tong University, emphasized, "The focus of this accounting law revision is to greatly increase legal responsibilities and strengthen crackdowns on financial fraud, especially major accounting manipulations. It enhances the deterrent effect of legal liability provisions and improves the intensity and accuracy of financial accounting supervision."

Meanwhile, in March, it was belatedly revealed that real estate developer Evergrande Group had engaged in earnings manipulation amounting to 564.1 billion yuan. The China Securities Regulatory Commission imposed a fine of 4.18 billion yuan for earnings manipulation, securities fraud, and failure to make timely disclosures. PricewaterhouseCoopers (PwC), the accounting firm involved in the faulty audit, was also fined 1 billion yuan for inadequate auditing.