On December 5, the Shenzhen Stock Exchange (SZSE) disclosed that Guotai Haitong Securities (formerly known as Haitong Securities) faced regulatory action for insufficient verification in its role as the independent financial advisor for China Energy Conservation Tiehan Ecological Environment’s asset acquisition and fundraising project.
The investigation revealed that Guotai Haitong failed to adequately scrutinize the premature revenue recognition practices of the target company, China Energy Conservation Dadi Environmental Remediation. According to the draft transaction report, Dadi Remediation recognized revenue for environmental restoration projects based on履约progress, calculated as the ratio of实际cumulative costs to total estimated合同costs, supported by supplier-signed completion certificates and client/监理-verified progress reports. Guotai Haitong claimed in its review response to have conducted control tests, examined收入-related documentation, and verified project costs, asserting that Dadi Remediation’s percentage-of-completion method and internal controls were sound.
However, the SZSE found that Dadi Remediation had提前recognized revenue in某些projects, overstating 2022 revenue by RMB66.39 million (11.35% of total) and understating 2023 revenue by RMB4.74 million (0.81%). This also distorted 2022 profit by RMB16.95 million (46.98%) and 2023 profit by RMB0.63 million (1.13%). Guotai Haitong’s核查procedures on revenue and cost accuracy were deemed inadequate, leading to "imprudent" conclusions.
As a result, the exchange imposed a书面warning as a self-regulatory measure against Guotai Haitong Securities.
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