Abstract:

Currently, special audit reports have become a persistent problem in criminal trials, with prominent issues seriously affecting judicial justice. The reason is that since the Ministry of Justice prohibited the registration management of forensic appraisal institutions outside the “four major categories,” judicial accounting appraisal has become “nominal in existence.” However, criminal trials still have the practical need for identifying and judging financial and accounting issues. Thus, special audit reports have become substitutes for judicial accounting appraisals. Given the high degree of freedom, limited constraints, and even the ability to openly circumvent evidence challenge rules, special audit reports have rapidly become a “new favorite” for investigative authorities in case handling. Based on current judicial practice and case-handling experience, the author proposes key points for reviewing special audit reports as evidence, hoping to spark discussion and jointly promote the improvement of evidence challenge rules in criminal proceedings.

Keywords: Criminal trial, judicial accounting appraisal, special audit report, evidentiary validity

I. Forensic Accounting Appraisal Institutions and Personnel Have Had Their Registration Cancelled; Special Audit Reports Have “Replaced” Judicial Accounting Appraisals

To clean up and rectify the chaos in forensic appraisals, in 2005 the Standing Committee of the National People’s Congress promulgated the Decision on Issues Concerning the Management of Forensic Appraisals (《关于司法鉴定管理问题的决定》, hereinafter the “Decision”), which explicitly stipulated that the following types of forensic appraisal practitioners and institutions shall be subject to a registration management system: (1) Forensic medical appraisals; (2) Physical evidence appraisals; (3) Audio-visual material appraisals; (4) Other appraisal matters that, based on litigation needs, are determined by the judicial administration department of the State Council in consultation with the Supreme People’s Court and the Supreme People’s Procuratorate as requiring registration management for appraisers and appraisal institutions. In 2015, the Ministry of Justice and the Ministry of Environmental Protection issued the Notice on Regulating the Management of Environmental Damage Forensic Appraisal Work (《关于规范环境损害司法鉴定管理工作的通知》), adding environmental damage forensic appraisal to the original “three categories.” Thus, the Ministry of Justice officially established the “four major categories” of forensic appraisal: forensic medicine, physical evidence, audio-visual materials, and environmental damage.

After the Ministry of Justice prohibited registration management of appraisal institutions outside the “four major categories,” although there was no express provision cancelling judicial accounting appraisal, it has effectively become “nominal.” According to documents such as the Ministry of Justice’s General Office Notice on Strictly Handling the Registration of Forensic Appraisers and Appraisal Institutions According to Law (司办通[2018]164号) and the Guangdong Provincial Department of Justice’s forwarding notice (粤司办[2019]38号), appraisal institutions and appraisers clearly engaged in “extra-four-category” appraisal activities, such as judicial accounting and construction engineering appraisals, must have their registrations cancelled according to law. Regarding legal documents on judicial accounting appraisal, only the Supreme People’s Procuratorate’s Forensic Appraisal Rules of the People’s Procuratorate (Trial) (《人民检察院鉴定规则（试行）》) and Detailed Rules for Judicial Accounting Work of the People’s Procuratorate (Trial) (《人民检察院司法会计工作细则（试行）》) currently exist [1].

Given the current尴尬 legal status of judicial accounting appraisal, and the practical need for statistical identification and judgment of financial and accounting issues in criminal cases, especially economic crimes, special audit reports have become substitutes for expert opinions. However, current laws, regulations, and judicial interpretations do not clearly specify the rules for challenging special audit reports. With legal gaps and the involvement of the relatively specialized field of accounting and auditing, if defense lawyers cannot effectively identify and point out problems, judicial authorities tend to adopt these conclusions as the final basis for determining the amounts involved.

[1] The author believes the legal validity remains controversial. According to Article 7 of the Decision, investigative authorities may establish appraisal institutions based on work needs but shall not accept commissions from society for forensic appraisal. People’s courts and judicial administrative departments shall not establish appraisal institutions. Although procuratorial authorities have investigative powers over certain crimes, according to the Decision, they can only establish appraisal institutions based on work needs, not commission other institutions for appraisals. Furthermore, according to Article 2(4) of the Decision, other appraisal matters requiring registration management are determined by the State Council’s judicial administration department in consultation with the Supreme People’s Court and Supreme People’s Procuratorate. Therefore, the relevant appraisal rules should be jointly promulgated by the Ministry of Justice and the Supreme People’s Procuratorate. The Decision was promulgated by the Standing Committee of the National People’s Congress and has higher legal validity and status than the relevant rules and detailed rules of the People’s Procuratorate. Therefore, the appraisal rules and judicial accounting work rules promulgated by the procuratorate clearly lack legal basis and legal validity.

II. Comparing the Substantive Differences Between the Two, Using Special Audit Reports as Substitutes for Judicial Accounting Appraisals Is “Passing Off Inferior as Superior”

Admittedly, both judicial accounting appraisals and special audit reports can provide professional opinions on financial accounting materials. Their connotations and extensions partially overlap, leading to difficulty in defining them in practice. Upon examination, the following substantive differences exist:

(1) Difference Between “Appraisal” and “Assurance”

On the Supreme People’s Procuratorate’s “Jian Da Wang” (Procuratorial Q&A Network), regarding the question “Is an audit report equivalent to a judicial accounting appraisal, and what are the substantive differences?” The expert answer: “Audit reports and judicial accounting appraisal reports are different in nature. Audit reports fall under assurance services. According to the Basic Standards for Assurance Services of Chinese Certified Public Accountants (《中国注册会计师鉴证业务基本准则》), assurance services refer to services where certified public accountants (CPAs) provide conclusions on assurance object information to enhance the confidence of intended users other than the responsible party. The role of assurance is mainly to judge whether the assurance object meets standards, generally serving as reference reports. Judicial accounting appraisal falls under appraisal services. In litigation, to ascertain case facts, persons with specialized knowledge examine the financial accounting materials and related materials involved in the case, identify and judge the financial accounting issues that need resolution, and provide opinions. Its role is to prove case facts through the inspection, verification, identification, and judgment of accounting evidence materials, with corresponding legal validity.” [2].

[2] Source: Are audit reports equivalent to judicial accounting appraisals, and what are the substantive differences? — Supreme People’s Procuratorate of the People’s Republic of China (spp.gov.cn)

That is, appraisal services involve identifying and judging a specific professional issue, providing direct proof (e.g., whether a fingerprint on a piece of physical evidence matches a specific person). Assurance services involve providing conclusions and guarantees on the information of the assurance object, enhancing the credibility of the assurance object information, and providing an additional guarantee. For example, according to the Chinese Standards on Auditing No. 1101 — Overall Objectives of the Certified Public Accountant and the Basic Requirements of an Audit (《中国注册会计师审计准则第1101号——注册会计师的总体目标和审计工作的基本要求》), when sufficient and appropriate audit evidence is obtained to reduce audit risk to an acceptably low level, reasonable audit assurance has been obtained.

Therefore, issues concerning whether a defendant is guilty and the severity of the crime should certainly not rely solely on the additional assurance provided by CPA firms based on low audit risk as the basis for conviction. Rather, a definite and scientific expert opinion issued by a subject with professional appraisal qualifications is needed to ensure the rigor, objectivity, and fairness of criminal trials.

(2) Different Materials for Forming Opinions

According to Articles 11 and 24 of the Detailed Rules for Judicial Accounting Work of the People’s Procuratorate (Trial) (《人民检察院司法会计工作细则(试行)》), the materials to be provided for commissioned appraisals include: (1) Financial accounting materials and related materials involved in the appraisal, such as accounting statements, general ledgers, subsidiary ledgers, accounting vouchers and attached original vouchers, bank statements, etc.; (2) Inspection records, seizure lists, evidence collection notices, etc. related to the appraisal; (3) Other relevant materials needed for the appraisal. Expert opinions shall not be formed based on non-financial accounting materials such as criminal suspect confessions, victim statements, or witness testimony.

According to the Chinese Standards on Auditing No. 1301 — Audit Evidence (《中国注册会计师审计准则第1301号——审计证据》), audit evidence refers to the information used by CPAs to reach audit conclusions and form audit opinions. Audit evidence includes information contained in the accounting records that form the basis of financial statements and information obtained from other sources, including written responses obtained from third parties through confirmation procedures [3], and inquiries [4] to knowledgeable persons inside or outside the audited entity to obtain financial or non-financial information.

Therefore, forensic appraisal opinions must not be formed based on non-financial accounting materials such as criminal suspect confessions, victim statements, or witness testimony. In contrast, for special audit opinions, CPAs may use, when necessary, materials such as written responses obtained from third parties or financial or non-financial information obtained from knowledgeable persons inside or outside the audited entity as audit evidence.

[3] Confirmation refers to the process where CPAs obtain written responses directly from third parties (the confirming parties) as audit evidence. Written responses may be in paper, electronic, or other media forms. Confirmation procedures can also be used to obtain audit evidence regarding the absence of certain conditions.

[4] Inquiry refers to the process where CPAs obtain financial and non-financial information from knowledgeable persons inside or outside the audited entity in written or oral form and evaluate the responses.

(3) Different Legal Effects of Opinions

According to Articles 14 and 20 of the Detailed Rules for Judicial Accounting Work of the People’s Procuratorate (Trial) (《人民检察院司法会计工作细则(试行)》), upon review, if the submitted materials are from unreliable or false sources, the appraisal institution shall refuse to accept the commission. If the submitted materials are insufficient during the appraisal process and cannot be supplemented, the appraisal institution shall terminate the appraisal.

According to Article 3 of the Chinese Standards on Auditing No. 1502 — Modified Opinions in the Independent Auditor’s Report (《中国注册会计师审计准则第1502号——在审计报告中发表非无保留意见》), in addition to unqualified opinions, special audit reports may also express qualified opinions, adverse opinions, or disclaimers of opinion — three types of modified opinions. Matters leading to modified opinions include two categories: (1) The financial statements contain material misstatements; (2) In the absence of sufficient and appropriate audit evidence, the financial statements may contain material misstatements.

Thus, for judicial accounting appraisals, if the submitted materials are inappropriate or do not meet the appraisal requirements, the appraisal institution shall directly refuse to accept the commission or terminate the appraisal. In contrast, for special audit reports, when sufficient and appropriate audit evidence cannot be obtained, making it impossible to determine the reliability of the financial statements, the special audit report can still issue an audit conclusion with a qualified opinion.

From the above three-point analysis, it is clear that judicial accounting appraisals and special audit reports are two completely different business types. Judicial accounting appraisals have higher overall requirements than special audit reports. Unlike special audit reports, which can reach audit conclusions based on non-financial materials and low audit risk, judicial accounting appraisals are conclusions based solely on financial accounting materials, bank statements, etc. Criminal proceedings judge whether a defendant is guilty and the severity of their guilt. They should use rigorous and objective evidence as the basis for conviction. After judicial accounting appraisals became “nominal,” using special audit reports as substitutes is truly “passing off inferior as superior,” seriously affecting judicial justice.

III. Prominent Problems of Special Audit Reports in Criminal Trials

(1) Mislabeling: Presenting Special Audit Reports as Documentary Evidence

In the author’s handling of a certain embezzlement case, during the evidence challenge process, the qualifications, audit process, and conclusions of the special audit report were all questioned and opposed, arguing that it should not serve as evidence for conviction. The prosecution responded that the special audit report was not an expert opinion and was not subject to the challenge rules for expert opinions; it was documentary evidence. This phenomenon is not isolated. For example, a certain criminal judgment [5] determined: “Documentary evidence refers to various documents that can be used to prove a defendant’s guilt or innocence discovered during investigations. Expert opinions refer to conclusions drawn by appointing or engaging persons with specialized knowledge to appraise certain specialized issues when needed to ascertain case facts. The special audit report in this case was commissioned by the public security organ from a qualified accounting firm to conduct a special audit of the funds of the involved company based on relevant existing evidence and produce a report. It is the result of sorting and calculating objective materials such as the number of persons and amounts involved in this case. The type of evidence is documentary evidence, not an expert opinion.”

[5] (2018) Zhe 0108 Xing Chu No. 140 First Instance Criminal Judgment.

(2) Substituting: Using Untested Confessions, Victim Statements, and Witness Testimony as Audit Basis

In practice, investigative authorities submit untested criminal suspect confessions, victim statements, and witness testimony as inspection materials to commission audit reports. The basis is Article 2 of the Application Guide for Chinese Standards on Auditing No. 1301 — Audit Evidence (《中国注册会计师审计准则1301号——审计证据》), which provides that audit procedures for obtaining audit evidence include inquiry. For example, in an illegal mining case handled by the author, to verify the quantity of overmined and illegally mined river sand, the investigative authority commissioned a CPA firm to use the confessions of the boat captains and crew as the audit basis to calculate the overmining quantity for a specific vessel during a specific time and section. Upon verification, the confessions of the boat captains and crew were all subjective inferences. For instance, based on information confirming 163 mining days, the captain was asked to infer that they went out at least 5 times per day on average, totaling 815 trips (i.e., 163*5). Of these, 36 trips (6 months * 6) were lawful mining, and it was inferred that all trips beyond the lawful ones were over-the-line mining, each trip at least 600 cubic meters, thus calculating the quantity of overmined and illegally mined river sand. This audit report was not auditing financial accounting materials at all, but rather auditing subjectively inferred data from the defendants’ confessions. The author believes that according to Article 88 of the Interpretation of the Supreme People’s Court on the Application of the Criminal Procedure Law (《刑诉法解释》), speculative, evaluative, or inferential testimony from witnesses shall not be used as evidence. In this case, the investigative authority “packaged” witness testimony that might be excluded into a special audit report to achieve a “substitution.”

(3) Overstepping: Making Legal Judgments and Evaluations in Special Audit Reports

According to Article 146 of the Criminal Procedure Law (刑事诉讼法), to ascertain case facts, when certain specialized issues need resolution, persons with specialized knowledge shall be appointed or engaged to conduct appraisals. Judicial authorities are state institutions that handle legal issues. The specialized issues should be professional issues other than legal issues. However, in practice, “overstepping” audit opinions still frequently appear. For example, in a first-instance criminal judgment for illegal absorption of public deposits and contract fraud [6], the appraisal opinion included a “Summary of Li’s External Absorption of Public Deposits,” in which the appraisal institution made a determination of “the amount of illegal absorption.” The court did not accept this part of the opinion. Obviously, whether absorption is “lawful” or “unlawful” is a legal evaluation issue beyond the scope of financial accounting professional issues. In addition, practice often sees legal evaluations of the defendant’s conduct, such as “taking advantage of one’s position,” “fraudulently issuing invoices,” or “without approval from state authorities,” or legal evaluations of subjective intent, such as “intentionally concealing,” “intentionally destroying,” or “maliciously overdrawing,” or legal evaluations of financial matters such as “falsely contributing capital,” “embezzlement,” “fraud amount,” “misappropriation of company funds,” “illegal absorption,” or “illegal profits.”

[6] (2018) Gan 08 Xing Zhong No. 69 Second Instance Criminal Judgment.

(4) Switching Concepts: Audit Conclusions Cannot Be Used to Prove the Amount of Crimes

In a certain virtual currency platform fundraising fraud case handled by the author, the evidence on record already showed that the relevant fundraising participants bought and sold virtual currencies among themselves on the platform. A significant portion of the funds flowed into other fundraising participants’ accounts and did not actually enter Company A’s accounts. The audit report merely conducted a special audit based on the economic losses suffered by the fundraising participants after the case was uncovered. The statistical conclusion was directly used as the amount of the defendant’s suspected fundraising fraud. Obviously, the audit report did not audit the actual funds received by Company A’s accounts, and the evidence on record could not form a relatively complete evidentiary chain of the fund flow process. Thus, using the special audit report as a pretext, the fact that should have been established — the actual amount of public deposits absorbed by the defendant and Company A — was replaced by the fact of losses self-reported by fundraising participants as the basis for conviction.

IV. Defense Lawyers’ Effective Challenge and Review of Special Audit Reports

(1) Review of Evidence Category

Special audit reports should fall under “expert opinions,” with challenge rules referencing expert opinions. According to Article 100 of the Interpretation of the Supreme People’s Court on the Application of the Criminal Procedure Law (《刑诉法解释》), if there is no appraisal institution, or if, according to law or judicial interpretation, a person with specialized knowledge is appointed or engaged to issue a report on specialized issues in a case, such a report may be used as evidence. The review and determination of the aforementioned reports shall refer to the relevant provisions of this section. If the person issuing the report refuses to appear in court as a witness after being notified by the people’s court, the relevant report shall not be used as the basis for judgment.

If the prosecution presents it as documentary evidence for submission and proof, defense lawyers may raise the following challenge points: (1) According to Article 82 of the Interpretation, documentary evidence can only be obtained in two ways: collection or seizure. A special audit report is a professional opinion made by a professional institution commissioned after the case has occurred, which completely does not meet the evidence source requirements for documentary evidence and should therefore be excluded [7]. (2) Even if the audit report is based on documentary evidence materials such as bank statements and financial vouchers, it is the result of further subjective analysis on the basis of such documentary evidence, and its essence remains an opinion expressed by a professional on a specific professional issue. (3) According to Article 84 of the Interpretation, the review standards for documentary evidence are: first, whether the evidence is an original; second, whether the content of the evidence shows signs of alteration. These two evidence rules are simply inapplicable to reviewing the evidentiary validity of special audit reports. If problematic evidence that does not conform to objective facts cannot be excluded through effective challenge, then the evidence challenge rules of criminal procedure become meaningless.

[7] The Several Provisions on Strictly Excluding Illegally Obtained Evidence in Handling Criminal Cases (《关于办理刑事案件严格排除非法证据若干问题的规定》) issued by the two highest courts and three highest authorities, Article 7: If the collection of physical or documentary evidence does not comply with statutory procedures and may seriously affect judicial justice, it shall be corrected or a reasonable explanation shall be provided; if it cannot be corrected or a reasonable explanation cannot be provided, the relevant evidence shall be excluded.

(2) Review of Subject Qualifications

First, the title should be “Special Audit Report,” not “Judicial Accounting Appraisal Opinion.” Any report that claims to be an appraisal opinion must provide a forensic appraisal qualification certificate issued by the Ministry of Justice. If an appraisal opinion lacks legitimate qualifications, it cannot be used as the basis for judgment. Second, a special audit report should be made by a legally qualified CPA firm and two or more CPAs, and the report should be stamped and signed accordingly, with institutional and individual qualification certificates attached. In practice, special audit reports often have only stamps without signatures. According to Articles 97 and 98 of the Interpretation, if there is no legitimate qualification, or if there is no stamp or signature, the report cannot be used as the basis for judgment.

(3) Review of Entrusted Matters

Entrusted matters refer to the specialized issues that the investigative authority needs to resolve. The review should examine whether they exceed the CPA firm’s business scope and whether the evidentiary purpose can be achieved. For example, if the investigative authority charges that Company A’s X product is suspected of illegal business operation, and the entrusted matter is “to audit the illegal business profits of Company A,” this not only increases the risk of subjective legal evaluation in the report but may also result in the inclusion of illegal business profits from products other than X during the audit, failing to achieve the evidentiary purpose. It should be changed to “to audit the profit amount from X product transactions of Company A.”

(4) Review of Audit Inspection Materials

Audit inspection materials should be limited to the involved financial accounting materials and related materials, such as accounting statements, general ledgers, subsidiary ledgers, accounting vouchers and attached original vouchers, bank statements, etc. Verbal evidence materials [8] should not be used as the audit basis but may be used as relevant explanations in the audit procedure. For example, in a suspected illegal absorption of public deposits case, relevant suspect interrogation records and investor complaint records may serve as explanations of the overall situation of the involved company’s investors, the company’s operating model, investment target projects, and the flow of raised funds. However, the conclusion must ultimately be based on financial information and data such as bank transaction records of the involved accounts. Additionally, according to Article 24 of the Detailed Rules for Judicial Accounting Work of the People’s Procuratorate (Trial) (《人民检察院司法会计工作细则（试行）》), expert opinions must not be formed based on non-financial accounting materials such as criminal suspect confessions, victim statements, or witness testimony.

[8] “Verbal evidence” refers to criminal suspect confessions, victim statements, and witness testimony.

(5) Review of Examination Methods

Examine whether the examination method is objective, scientific, and compliant with auditing standards. Common examination methods for financial accounting materials include scrutiny, verification, recalculation, and analytical review. As criminal evidence, two main examination methods should be excluded. First, sampling/spot-check methods should not be used. Special audits may use sampling, but judicial accounting appraisal explicitly prohibits it. If a special audit report serves as a substitute, it must also conduct a comprehensive review of accounting materials and cannot use sampling. Second, confirmation and inquiry methods should not be used. According to auditing standards, CPAs may use verbal materials obtained through confirmation and inquiry as the audit basis, but this is also explicitly prohibited in judicial accounting appraisal.

(6) Review of Audit Results

Review the audit results, including whether the conclusion is objective and truthful. Vague or speculative opinions should not be issued. Whether legal evaluation has been made. Whether an unqualified opinion has been expressed.

First, the report must have a clear conclusion and should not use expressions such as “possible” or “inferred” as the conclusion. Second, legal evaluation opinions should not be expressed, such as “the amount of embezzlement/misappropriation/appropriation/illegal profit is XXX,” or “taking advantage of one’s position,” “intentionally concealing,” “maliciously overdrawing,” “illegally absorbing,” etc. Third, the report should express an unqualified opinion. If the inspection materials are untrue or conflicting, the audit should be terminated rather than a qualified opinion issued. In practice, some audit reports use grammatical workarounds to pass review. For example, one audit report included “matters requiring explanation,” which is essentially expressing a qualified opinion. In that explanation, it stated that based on differences in the criminal suspect’s statements and following the principle of prudence after consultation with the bureau, the lower amount was adopted. The so-called “principle of prudence” is essentially the “when in doubt, favor the defendant” principle of adopting the lower amount in criminal trials. Expressing a qualified opinion in a report often does not disclose problems but rather attempts to conceal them.

(7) Review of Audit Report Attachments

Examine whether the report attachments include the inspection materials, or charts, photos, etc., related to the report. Attachments are important for verifying whether the audit process and conclusions are objective and scientific, and should include institutional and individual qualification certificates.

In summary, based on case-handling experience, the author has identified several prominent problems with special audit reports that have seriously affected judicial justice. The issues mentioned in this article may only represent the tip of the iceberg. The main causes of these problems are the unclear legal status, unclear boundaries, and unclear challenge rules for special audit reports. To effectively resolve this混乱, the Supreme People’s Court urgently needs to clarify and standardize this through judicial interpretations, proposing specific and operational challenge rules for special audit reports to demonstrate judicial fairness and authority.