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This article forward Xu Feng whisper article "From a penalty case to see how to do research and development expenses audit". According to the common problems of R&D expenses audit and the reasons for supervision, it can be seen that the common problems of R&D expenses audit and how to do the audit in place!

Key points of the problems found in the audit are as follows:

I. Risk identification and assessment procedures are not in place

2. Insufficient control testing procedures

3. Substantive procedures for R&D expenses are not in place

Iv. Errors and omissions in audit working papers

V. Failure to maintain proper control over the certification

Risk Presenter:

Auditing R&D expenses of accounting firms

Industries at risk:

Accounting firm

What should be done in the audit of R&D expenses from a penalty case

Yung Cheng Certified Public Accountants (Special General Partnership) and Certified Public Accountants Wu Qiang, Wang Yinghang, Liu Jiaming:

In accordance with the relevant provisions of the Securities Law of the People's Republic of China, our bureau has carried out a special check on the IPO audit practice project of Shandong Taipeng Environmental Protection Materials Co., LTD. (hereinafter referred to as Taipeng Environmental Protection or Company). We have found that you have the following problems:

I. Risk identification and assessment procedures are not in place

First, the internal control related to research and development is not fully understood. You recorded in your understanding of the internal control of the R&D cycle that the R&D process included R&D acquisition, but the description of R&D procedures or controls during the walk through test did not include critical control points such as R&D acquisition, and there was no explanation. In addition, most of the test results recorded in the product quality test report in the audit worksheet were "unqualified", and you did not understand the relevant reasons.

Second, the risk assessment of material misstatement is inadequate. In 2018, 2019 and 2020, the company's R&D expense ratio and gross profit margin were higher than the average level of comparable companies in the industry; You are also concerned that the Company uses the same set of equipment for production and research and development, and there is no clear distinction between production and research and development activities, which may affect the accuracy of the division of operating costs and research and development expenses. You include operating costs as a risk of material misstatement at the recognized level, but you do not include R&D expenses as a risk of material misstatement at the recognized level, without explaining why.

The above situation is not in accordance with Article 15, 16 and 29 of the Auditing Standards for Chinese Certified Public Accountants No. 1211 -- Through Understanding the Audited Entity and Its Environment and Assessing the Risk of Material MisStatement (2019). And Article 28 of China Auditing Standards for Certified Public Accountants No. 1101 -- General Objectives of Certified Public Accountants and Basic Requirements for Audit Work (2019).

2. Insufficient control testing procedures

First, the test program is difficult to support the realization of control objectives. In the research and development cycle, the audit work papers show acquisition company research and development involve r&d documents including r&d department each month issued by picking notice, actual picking warehouse manually fill in the material requisition and ERP system automatically generated r&d acquisition.besides, the ERP system generated r&d acquisition outbound order for financial accounting basis. You when performing the research and development cycle control test procedure only check the ERP system to generate outbound order and proof of charge to an account, not to check the consistency of the above three kinds of document information, nor for labor costs, depreciation expense credit amount check accuracy, unable to determine "r&d classified correctly, books are accurate and timely" control goals are achieved.

Second, the influence of the identified deviation is not fully considered. When you tested the internal control of capital circulation, you found that the accounting vouchers related to the company's monetary capital were made by the same person as the cashier, and the deviation identified in the manuscript records was "Cashier preparing accounting vouchers". For the deviations identified in the control tests, you did not implement further audit procedures to carefully evaluate the impact on the overall effectiveness of your internal controls.

The above situation does not comply with the provisions of Article 10 of Auditing Standards of China for Certified Public Accountants No. 1301 -- Audit Evidence (2016).

3. Substantive procedures for R&D expenses are not in place

One is applied on the audit work papers show that r&d substantive tests including "combined with inventory assets such as check of the project, whether there is the product cost and r&d cost between string of door", but not at the time of executing the program will you compare the production and research and development in the process of document information, not found two types of documents record there is a conflict, the product cost and r&d cost there may be a string of door, Inadequate audit procedures.

Second, you did not verify whether the personnel in the R&D personnel list provided by the company were actually engaged in R&D, and you did not find that the company included a large number of personnel expenses in the customer service department, personnel department, workshop and sales department into the R&D expenses.

Third, a subsidiary directly classified some of the fixed assets in the production line as research and development equipment, and all the relevant depreciation was included in the research and development expenses, without clearly distinguishing the research and development equipment and production equipment. You were aware of this situation and did not conduct further audit procedures to carefully analyze the impact of this matter on the accuracy of the division of operating costs and R&D expenses.

Fourth, during the reporting period, the company directly wrote off the research and development expenses from the waste cloth income of RMB 7.409,500 yuan on the grounds that the research and development generated waste materials. You did not check whether the formation of waste cloth was related to the research and development activities, and did not consider the rationality of the accounting treatment of the waste cloth income write-off the research and development expenses.

The above situation is not in accordance with Article 10 of Auditing Standards of China for Certified Public Accountants No. 1301 -- Audit Evidence (2016), Article 6 and 7 of Auditing Standards of China for Certified Public Accountants No. 1251 -- Evaluation of Misstatements Identified in the Audit Process (2019). And Article 29 of China Auditing Standards for Certified Public Accountants No. 1101 -- General Objectives of Certified Public Accountants and Basic Requirements for Audit Work (2019).

4. Failure to maintain proper control over the certification

The mailing address of 23 customers and suppliers is inconsistent with the business address. You explained that "the mailing address is close to the business registration address", did not carry out further audit procedures to understand the cause of the inconsistency, and did not maintain due control over the verification.

The above situation is not in accordance with the provisions of Article 14 of Auditing Standards of China for Certified Public Accountants No. 1312 -- Letter of Certification (2010).

5. There are mistakes and omissions in the audit working papers

First, the audit documents of risk assessment are inconsistent. For example, you did not identify "Management over control" as a special risk in "Summary of Risk Assessment Results", and identified "Management over control" as a special risk in other documents such as "Fraud Risk Identification and Countermeasures". Second, the research and development expenses audit draft records are incomplete. You have obtained from the company a table of power hours consumed by each research and development project, which lists the total depreciation of equipment used in research and development for each research and development project in the same month and a table of depreciation expense allocation for research and development machine hours, but does not explain the source and basis of related data such as power hours, total depreciation and research and development machine hours.

The above situation does not comply with the provisions of Article 10 and 11 of Auditing Standards of China for Certified Public Accountants No. 1131 -- Audit Working Papers (2016).

Our bureau finds that the above behavior of you is not in conformity with the relevant requirements of the China Certified Public Accountants Practice Code and in violation of the provisions of Article 6 of the Administrative Measures for Initial Public Offering and Listing of Stocks (Order No. 173 of the CSRC, the same below). In accordance with Article 55 of the Administrative Measures for Initial Public Offering and Listing, our bureau has decided to take regulatory measures against you and your signed certified public accountants Wu Qiang, Wang Yinghang and Liu Jiaming. Now you are required to bring your relevant responsible person, quality control person and relevant signed certified public accountant to our bureau at 9:00 on July 18, 2022 to accept the supervision and interview.

If the applicant is not satisfied with the regulatory measures, he/she may file an application for administrative reconsideration with the China Securities Regulatory Commission within 60 days from the date of receiving the decision, or file a lawsuit with the competent people's court within 6 months from the date of receiving the decision. During the period of reconsideration and litigation, the above supervisory measures shall not be suspended.