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China Asks IPO Advisers to Inspect Clients’ Financial Reports

China asked initial public offering advisers to inspect their clients’ financial statements over the next three months as regulators step up efforts to combat fraud.

The China Securities Regulatory Commission said on its website yesterday that it will randomly examine “self-inspection” reports from investment banks and accounting firms. The CSRC will take legal action against issuers and advisers if misconduct such as earnings manipulation and financial irregularities is found, according to the statement.

Several recent high-profile fraud cases involving Chinese companies have prompted mainland and Hong Kong regulators to toughen rules on IPO advisers. Hong Kong’s securities regulator this month proposed making banks criminally liable for false statements in IPO documents.

In 2011, the CSRC issued a warning letter to Ping An Securities Co., adviser of Hunan Shengjingshanhe Bio-Technology Co. and suspended the licenses of two Ping An employees after it rescinded approval for Shengjingshanhe’s IPO plan due to “major omissions” of financial information.

The number of companies awaiting approval for IPOs in China swelled to more than 800 in December as regulators delayed reviewing new applications on concern a flood of shares may further weigh on the nation’s benchmark stock market.

The benchmark Shanghai composite index has gained 1.5 percent this year, compared with the 18 percent gain in the MSCI China Index of mostly Hong Kong-traded shares.

IPO advisers must submit audit reports and any additional materials for 2012 by the end of March, the CSRC said in yesterday’s statement.

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