Taihe · Listed Company Securities Compliance Column | From Formal Review to Substantive Oversight: Determining Accountability and Mitigating Risks in the Audit Committee’s Performance of Duties

The high-quality development of the capital market hinges on the compliance foundation of listed companies. With the full-scale rollout of the registration-based system and the frequent refinement of regulatory frameworks, securities compliance has become a central pillar for the stable operation of listed firms. Accurately aligning with regulatory guidance and fortifying compliance safeguards are critical enablers for companies to navigate market cycles.

To this end, we have established this dedicated column, focusing on the core areas of securities compliance for listed companies: summarizing the key points of new regulatory rules, deconstructing the rationale behind typical enforcement actions, dissecting the essence of court rulings, and thoroughly examining the practical challenges of compliance. Adopting a legal‑professional perspective, we employ clear, pragmatic language and scenario‑based analysis to interpret compliance requirements, map out risk pathways, and provide actionable guidance, thereby helping companies strengthen their internal control systems, mitigate compliance risks, and enhance the effectiveness of their compliance management.

When compliance thrives, enterprises thrive; when compliance is stable, development is stable. We hope this column will serve as a trusted professional partner for listed companies—helping them discern regulatory trends, address compliance challenges, mitigate compliance risks, and strengthen the foundations of sustainable growth—so that together we can foster the sound and healthy development of the capital market.

Following the implementation of the new Company Law and the accompanying rules issued by the China Securities Regulatory Commission, A‑share listed companies have completely abolished their supervisory boards, with the supervisory board’s statutory oversight functions now fully transferred to the board of directors’ audit committee. Corporate governance has thus shifted from the traditional dual‑tier supervisory model to a single‑tier internal oversight structure under the board of directors. The audit committee is no longer merely a specialized committee subordinate to the board; it has officially become the central mechanism for internal oversight in listed companies. During the 2025 annual report disclosure season alone, members of the audit committees of four listed companies explicitly cast “opposing votes” on matters related to the annual reports, while seven listed companies received formal letters of urging from independent directors. Recently, the chair of the YCSJ audit committee was heavily fined RMB 1.5 million for failing to exercise due diligence, a stark contrast to the exemption granted to the ZRGF audit committee for raising objections. These developments have clearly delineated the boundaries of authority and responsibility and established risk thresholds for the audit committee’s performance of duties and for the ongoing reform of the independent director system.

The effectiveness of duty performance determines the determination of liability.

[Performance‑of‑Duty Warning: YCSJ — Formal Review Without Substantive Verification Triggers Accountability]

According to Penalty Document No. 15 of 2026 issued by the Jiangsu Securities Regulatory Bureau, YCSJ was found to have engaged in long-term, systematic financial fraud, and the company along with 10 relevant persons held accountable… Total fines and confiscations amounted to RMB 149.1 million. , among whom Lei, the convener of the audit committee with an accounting background, was determined to be Other directly responsible persons for the company’s illegal information disclosure were fined RMB 1.5 million. , which carries significant implications for compliance guidance. The regulator’s determination that it failed to exercise due diligence hinges not on its involvement in or knowledge of the fraudulent conduct, but rather on Despite possessing an accounting background and, in the context of the company’s long-term, systematic financial fraud and numerous anomalies in its financial data, failing to take effective measures to prudently verify the relevant circumstances, he/she signed the annual reports for 2021 through 2023 and the semi-annual report for 2024, thereby falling short of due diligence.

This case clarifies the benchmark for professional committee members’ performance of duties: the chair of the audit committee, who holds an accounting background, bears a heightened duty of due diligence and may not simply rely on management disclosures or external audit conclusions, using “lack of knowledge” or “being misled” as grounds for exemption from liability. Failure to proactively investigate clearly anomalous financial red flags constitutes a deficiency in fulfilling one’s duties and entails corresponding regulatory accountability.

[Exemplary Performance: ZRGF—Prudent Skepticism and Proactive Risk Management Lead to Liability Exemption]

In April 2026, during the review of the annual report, three members of the ZRGF Audit Committee raised significant concerns regarding related-party relationships and transactions, as well as the underlying commercial substance of certain business activities. They requested that the company engage an independent third-party firm to verify key issues identified by the auditor, including the commercial rationale behind transactions with a particular supplier, the accuracy of cost allocation, and the economic reasonableness of a specific service offering. Based on their professional judgment, the committee members cast dissenting votes on the annual report, temporarily suspending the approval and disclosure process. Subsequently, the company was placed under a delisting risk warning for failing to disclose its annual report on time.

In September 2026, the Shanghai Securities Regulatory Bureau issued a preliminary notice of administrative penalties against ZRGF for false records, misleading statements, and material omissions in its periodic reports, imposing sanctions on the company and the senior executives directly involved. No accountability was pursued against the three members of the Audit Committee. During the performance of their duties, ZRGF’s audit committee members are able to proactively identify risks, objectively raise professional concerns, block the disclosure of flawed information through compliance‑based voting, and maintain a complete record of their actions. These practices satisfy the requirements of due diligence and diligence, thereby entitling them to be exempted from administrative liability in accordance with the law.

Objection voting is poised to become a compliance norm.

During the 2025 annual report disclosure season, several listed companies—including ZRGF, NDDY, WFGF, and PLSW—saw their audit committees and independent directors cast dissenting votes on the annual reports. Moreover, seven listed companies received formal letters of urging from their independent directors. Under the new governance framework that strengthens the duties of independent directors, this represents the role of the audit committee… Return to substantive oversight and compliance-based duty performance. The core embodiment.

As the reform of the independent director system deepens, regulators continue to steer audit committees toward a shift from mere procedural compliance to substantive oversight. The audit committee’s powers and responsibilities have become clearer, and the requirements for professional履职 have been further refined. Members with a financial background are now subject to heightened standards of care and must not passively rely on third-party conclusions.

Based on past cases involving the expression of dissent, committee members have primarily conducted proactive, in-depth reviews, independent inquiries, and targeted verifications. They first raise deliberative requests for supplementary investigations, document retrieval, and special audits regarding matters of concern, and then meticulously record in the voting outcomes and meeting minutes the rationale underlying their concerns, the identified risk factors, and their professional judgments. In accordance with applicable rules, they cast dissenting or abstention votes, thereby ensuring a complete and traceable record of their履职 (performance of duties) decisions.

Multiple factors constrain the effectiveness of duty performance.

The Audit Committee of ZRGF issued three dissenting votes, effectively halting the flawed annual report at the board‑level review stage and preventing misrepresentation at its source. This underscores the Committee’s assumption of core oversight responsibilities and highlights its greater efficacy in supervision compared to the Supervisory Board. However, in practice, multiple deep‑seated shortcomings continue to constrain the Audit Committee’s and independent directors’ ability to perform their duties effectively. Committee members typically rely on management‑compiled materials for their reviews, lacking routine access to underlying supporting documents, accounting records, and original business documentation, which impedes thorough, end‑to‑end verification. Their decision‑making is overly dependent on external audit reports and personal professional judgment, with insufficient independent, targeted due‑diligence, resulting in markedly limited proactive oversight. Moreover, the conventional fixed‑allowance payment model, dominated by listed companies, gives rise to履职 concerns among some committee members, fostering a cautious mindset characterized by reluctance to raise objections and fear of exercising oversight, thereby undermining both the independence and effectiveness of audit supervision.

Continuously optimize the quality and effectiveness of duty performance.

In line with the core guiding principle of the independent director system reform—shifting from procedural compliance to substantive substance—the committee can be systematically enhanced across three dimensions: the nomination mechanism, information channels, and safeguards for the performance of duties. Dare to supervise, able to supervise, and supervise with evidence. , truly activating substantive oversight capabilities.

First, a diversified nomination mechanism has been introduced, with a particular focus on breaking the traditional pattern in which major shareholders and de facto controllers monopolize the nomination of independent directors, thereby enhancing the independence of their履职. Currently, regulators explicitly encourage entities such as investor protection organizations to nominate independent directors through public solicitation of shareholder rights in accordance with the law. To date, the China Securities Investor Service Center has successfully implemented dozens of cases involving the public nomination of independent directors and the solicitation of shareholder voting rights, marking the transition of third-party nominations into a normalized practice.

Second, we will streamline information access channels and establish a normalized mechanism for authorizing履职 activities, granting the Audit Committee independent authority to review original documents such as underlying accounting records, business contracts, and fund transaction histories, thereby breaking down information silos. With respect to high‑risk matters—including related-party transactions, unusual revenue streams, significant impairment charges, and non‑standard fund flows—the Committee may intervene in advance, proactively seek clarifications, and conduct item‑by‑item verification; when necessary, it may propose launching special investigations, thereby addressing information asymmetry through a transparent, end‑to‑end approach to oversight.

Third, we will optimize the system for ensuring the proper performance of duties by establishing standardized procedures for handling objections. For matters that remain under scrutiny or where risks have not been fully mitigated, we will, in accordance with regulations, propose to defer deliberation, reserve dissenting opinions, or cast opposing votes. We will also maintain a complete record of all relevant actions, including inquiries, investigations, and objection‑related voting, thereby ensuring compliance through transparent documentation and enabling long‑term, effective履职.

(This article reflects the author’s personal views and is intended solely for informational purposes; it does not constitute legal advice or an interpretation of the law by Taihe Law Firm. This disclaimer is hereby made.)

Liu Yufei

Business Head of the Compliance Consulting Department, Taihe (Shenzhen) Law Firm

Mr. Liu Yufei is the Head of the Compliance Consulting Department at Taihe (Shenzhen) Law Firm. Over the years, he has devoted himself to researching compliance management and information disclosure in listed companies, with a deep understanding of their standardized operations, corporate governance, capital management, and compliant transaction practices. He has led his team in providing services to hundreds of listed companies.

This article is published by Jiangsu Taihe Law Firm. The author is Jiangsu Taihe Law Firm, and the copyright belongs to the author. Please cite the original source when reprinting; violations will be prosecuted.

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