China Overhauls CPA Law and Professional Liability Insurance Rules

I.Executive Summary

On June 26, 2026, the Standing Committee of the National People’s Congress adopted a substantial amendment to the PRC Certified Public Accountants Law (Amended CPA Law)¹.  The amendment will take effect on January 1, 2027.  It retains the existing statutory framework but adds specific duties, stronger supervisory tools and materially higher penalties aimed at audit failures and financial fraud.

The Amended CPA Law makes professional skepticism  and the performance of necessary audit procedures part of the statutory standard for issuing an audit opinion. It also expands potential liability beyond accounting firms and signing CPAs to clients, audited entities and other parties that collude in, instigate or facilitate false reporting. It also clarifies that audited entities and third parties are responsible for the authenticity and completeness of the accounting materials they provide.

On July 29, 2026, the Ministry of Finance (MOF) and the National Financial Regulatory Administration (NFRA) subsequently issued the Measures for the Implementation of Professional Liability Insurance for Accounting Firms (Professional Liability Insurance Measures)². The Professional Liability Insurance Measures will also take effect on January 1, 2027, with a one-year transition period for firms to comply with their requirements. They increase the minimum aggregate limit under the primary policy for firms providing securities services or auditing financial enterprises and other public-interest entities from RMB 50 million to at least RMB 100 million, subject to a higher calculation based on the number of partners.

The Amended CPA Law reinforces the key statutory requirements governing audit work, audit opinions and professional conduct; increases liability for deficient audit work; and requires audit working papers and related archives to be maintained in China. The Law targets not only the intentional issuance of false reports but also covers failure to perform required audit procedures, extends liability beyond auditors to companies that instigate or facilitate falsification and significantly increases penalties including higher fines, lifetime practice bans and credit-related sanctions. It also restricts securities audit services to accounting firms organized as partnerships.

The Professional Liability Insurance Measures link risk financing more closely to a firm’s business profile, regulatory history, litigation record and claims experience. Therefore network quality reviews, cross-border technology platforms and global insurance programs will require coordinated legal, audit-quality, data-governance and insurance reviews.

II.The Amended CPA Law

We summarize the key changes introduced by the Amended CPA Law below:

Professional Scepticism and Appropriate Audit Procedures Become Important Statutory Requirements

Article 23 requires CPAs to follow prescribed audit procedures and prohibits the issuance of false reports. It also prohibits a CPA from issuing an inappropriate audit opinion or report where the CPA fails to maintain due professional skepticism and, at the same time, fails to perform necessary audit procedures or obtain sufficient and appropriate audit evidence. The provision effectively elevates these familiar professional standards into express statutory requirements and provides a clearer basis for regulatory enforcement. It also applies where a CPA knew, or should have known under applicable professional standards, that the audited entity’s accounting treatment was materially improper or misleading.

Engagement teams should be able to demonstrate how they identified and assessed fraud risks, challenged management assumptions, addressed contradictory evidence, evaluated third-party confirmations and documented the basis for professional judgments. Merely completing standard audit checklists will carry limited weight if the underlying audit record does not demonstrate appropriate professional skepticism and a critical evaluation of the evidence.

For CPA firms, this means that audit misconduct and potential liability are no longer limited to situations involving the knowing falsification or misrepresentation of audit findings or opinions. A failure to perform necessary audit procedures, obtain sufficient and appropriate audit evidence or exercise appropriate professional skepticism may itself give rise to regulatory liability. The amendment therefore reinforces a shift in regulatory focus from whether an auditor intentionally participated in wrongdoing, to whether the auditor properly discharged its professional responsibilities in conducting the audit.

The Responsibility Chain Extends Beyond the Audit Firm

The Amended CPA Law reinforces the distinction between management’s responsibility for financial information and the auditor’s assurance role. Under Article 19 audited entities, organizations and individuals must ensure the authenticity and completeness of their accounting materials and must not provide false material. Article 49 separately authorizes penalties against a client, audited entity or any other organization or individual that colludes with or instigates an accounting firm or CPA to issue a false report.

These provisions do not diminish an auditor’s duty to detect material misstatements in accordance with professional standards. They do, however, provide regulators with a clearer basis to pursue management and third parties involved in fraud, rather than treating the accounting firm as the sole enforcement target. Firms should preserve evidence of management representations, information requests, delays, restrictions and suspected third-party cooperation with the audited entity.

This amendment more clearly delineates the respective responsibilities of the management of audited clients and audit firms. In particular, it addresses situations where an audit firm improperly assumes management’s responsibility for preparing financial statements or colludes with management to falsify financial statements and issue false or misleading audit opinions. The amendment also reinforces the responsibility of client management by deterring audited entities from providing falsified, misleading or incomplete accounting records or other information that could interfere with or mislead the audit firm in the performance of its professional duties.

Changes to Organizational Forms and the Liability of CPA Firms

The amended CPA Law introduces significant changes to the permitted organizational forms of accounting firms. Accounting firms organized as partnerships may take the form of either a general partnership or a special general partnership, with the amended CPA Law expressly recognizing the special general partnership structure. Partners will bear liability in accordance with the liability regime applicable to the relevant form of partnership.

The permitted scope of business of limited liability accounting firms will be significantly restricted. Limited liability accounting firms will not be permitted to engage in securities-related services or certain other services involving significant public interests. As a result, securities audit services, including audits in connection with IPOs and annual audits of listed companies, may only be undertaken by accounting firms organized as partnerships. This means that a limited liability accounting firm will no longer be eligible to serve as the auditor for an IPO or the annual audit of a listed company.  The CSRC currently maintains a list of CPA firms qualified to provide securities-related services, including audit services for listed companies in China. The list currently includes more than 100 CPA firms. Limited liability CPA firms are gradually being phased out from the list, consistent with the broader regulatory shift toward requiring securities-related audit services to be performed by partnership CPA firms.

Most leading CPA firms in China are already organized as special general partnerships. The principal distinction between a general partnership and a special general partnership is the greater protection afforded to partners who are not responsible for professional misconduct. In a general partnership, partners generally bear unlimited joint and several liability for the debts of the partnership. By contrast, under the special general partnership structure, where partnership liabilities arise from a partner’s intentional misconduct or gross negligence in the course of professional practice, the responsible partner or partners are subject to unlimited liability or unlimited joint and several liability, while other partners generally bear liability only to the extent of their interests in the partnership. This structure is therefore particularly suited to professional service firms, such as accounting firms, where substantial professional liability may arise from the conduct of individual partners.

Both general partnerships and special general partnerships are recognized under the PRC Partnership Enterprise Law. The amended CPA Law, however, reinforces the special general partnership as an important organizational form for CPA firms. Special general partnership firms are also subject to enhanced requirements relating to professional risk management, internal controls and governance and are typically larger firms with more substantial professional operations.

Licensing Precedes Business Registration

The Amended CPA Law makes a significant change to the current licensing systems for CPA firms. At present, the establishment of a CPA firm, as well as subsequent changes to its registration, generally requires the firm to first complete the business registration or amendment registration with the State Administration for Market Regulation (SAMR) or its local offices, followed by obtaining or amending the necessary practice license from the MOF or its local finance authorities.

This sequence will be reversed under the Amended CPA Law. A new accounting firm must first obtain approval and a practice license from the competent provincial MOF office and then complete its business registration within 60 days of approval. The MOF practice licensing process will now precede business registration.

The new regime is intended to address the problem of entities registering a business name that includes ‘accounting firm’ without obtaining the required practice license from the finance authorities. Some of these entities have nevertheless solicited business and issued audit reports or other documents in the name of a CPA firm.  This can mislead clients into believing that the entity is duly licensed to provide audit services and may contribute to misconduct, including the issuance or sale of false or improper reports. The Amended CPA Law seeks to close this regulatory gap by requiring professional licensing before business registration.

The Amended CPA Law also restricts the activities that may be undertaken by limited liability accounting firms. Such firms will not be permitted to engage in securities-related services or other specified businesses involving significant public interests. The MOF and CSRC will continue to play important roles in regulating access to the securities audit market. For international accounting networks, these changes also reinforce the importance of ensuring that branding, service-company arrangements and engagement acceptance procedures clearly distinguish the licensed CPA firm from other network entities that are not themselves licensed to provide statutory audit services.

Significantly Increased Penalties for Accounting and Audit Fraud

An accounting firm that violates Article 22 or Article 23 may face increased penalties. Article 22 requires a CPA to refuse to issue a report, or to issue an appropriate modified opinion, where the client or audited entity requests an improper certification, deliberately withholds materials or imposes other unreasonable requirements that prevent the CPA from properly addressing material financial matters. Article 23 requires CPAs to comply with the applicable accounting requirements, professional standards and prescribed audit procedures, and prohibits the issuance of false or otherwise inappropriate reports. This includes where a CPA fails to maintain appropriate professional skepticism, perform necessary audit procedures or obtain sufficient and appropriate audit evidence.

The new rules also significantly increase the penalties for accounting fraud, including the falsification or alteration of accounting vouchers and books, the preparation of false financial statements and the concealment or destruction of accounting records. Where an audited client or CPA firm derives illegal gains, it may be fined one to ten times the amount of such gains, compared with a maximum of five times the illegal gains under the existing rules. Where there are no illegal gains or the illegal gains are less than RMB 200,000, a fine of RMB 200,000 to RMB 2 million may be imposed. The responsible managers and other directly responsible individuals may also face fines of RMB 100,000 to RMB 2 million, and accounting personnel may be prohibited from engaging in accounting work for up to five years.

The rules also impose heavier penalties on persons who instruct, direct or compel others to commit accounting fraud. Such persons, including the responsible management and other individuals who direct the misconduct, may be fined RMB 200,000 to RMB 5 million, in addition to potential disciplinary or criminal liability. This reflects an increased focus on holding management and other persons who direct or instigate accounting fraud accountable, rather than only imposing liability on the accounting personnel who carry out the misconduct. More general accounting violations, such as failure to maintain the required accounting books or non-compliant accounting records, are subject to graduated penalties and may also be reflected in the credit records.

Separate penalties apply to prohibited conduct under Article 24, including lending or permitting the use of a CPA’s name, practicing simultaneously at multiple accounting firms and obtaining business through coercion, fraud, bribery or other improper means. These provisions create a more direct compliance imperative for CPA firms to strengthen the controls over CPA registration, signing authority, independence, engagement acceptance and other professional conduct.

Supervision Becomes More Direct and Evidence-Based

The new supervision chapter authorizes finance departments at the central and provincial levels to conduct inspections of accounting firms and CPAs and require them to truthfully provide audit working papers and other relevant materials. Regulators may also use supervisory measures such as regulatory interviews, warning letters and rectification orders. Refusal to cooperate with or obstruction of an inspection, or concealment or failure to provide required materials, may result in fines of up to RMB 1 million in serious cases. Accounting firms should therefore establish clear regulatory inspection and response protocols that preserve applicable privilege and confidentiality protections while enabling the licensed firm to promptly comply with its statutory production obligations.

Audit Files Must Remain in China

Article 45 requires audit working papers and audit archives to be stored in China. Unless otherwise provided by the applicable national rules, no organization or individual may take or transmit such materials outside China without authorization. Violations may expose an organization to fines of up to RMB 2 million and responsible individuals to fines of up to RMB 500,000. In serious cases, an accounting firm or CPA may also face suspension or the revocation of its practice license or other sanctions.

For international accounting firms and networks, the restriction on ‘transmissions’ may have implications beyond the physical transfer of audit files. Depending on how the provision is interpreted and implemented, it may also affect remote access from outside China, overseas replication or backup, cloud hosting, global audit and quality-monitoring systems and access to PRC audit files by overseas network personnel or technical support teams. Therefore, international firms should review the systems and arrangements through which PRC audit working papers or archives may be accessed from or transmitted outside China, determine the applicable legal basis and any required approval procedures and coordinate these audit-specific requirements with the broader PRC cybersecurity, data localization and cross-border data transfer regime.

III.Professional Liability Insurance Measures

Higher Coverage Limits for Public-Interest Work

For accounting firms that provide securities services or audit services to financial institutions and other public-interest entities, the aggregate limit under the primary professional liability insurance policy must be at least the higher of RMB 1 million multiplied by the number of partners at the time the policy takes effect and RMB 100 million. For other accounting firms, the required aggregate limit remains the higher of the firm’s audit revenue for the preceding year and RMB 500,000, multiplied by the number of partners or shareholders.

The year-end balance of a firm’s professional risk fund for the preceding year may be used to offset the required aggregate insurance limit. If the insurance coverage reaches the applicable threshold the firm may, after completing the procedures required under its partnership agreement or articles of association, resolve not to make further contributions to the professional risk fund. This provides firms with some flexibility in determining the appropriate mix of insurance coverage and risk-fund reserves, although firms should consider the liquidity, coverage and governance implications before changing their existing arrangements.

Coverage Terms and Governance Require Equal Attention

The aggregate coverage limit is only one component of the professional liability insurance requirements. The primary policy must address the scope of coverage, policy period, a reasonable retroactive or reporting period, per-claim and aggregate limits, deductibles and legal and other costs. Accounting firms may also obtain additional coverage for risks such as loss of books and records or, when purchasing insurance for the first time, an extended retroactive period. The MOF and NFRA have emphasized that professional liability insurance is principally intended to cover civil liability arising from professional negligence and does not provide protection for intentional fraud or collusion.

Insurers must also satisfy specified qualification and underwriting requirements including appropriate underwriting capacity, dedicated risk-control personnel and a comprehensive solvency adequacy ratio of at least 180% for each of the preceding three years. Premium pricing may take into account factors such as the number and experience of CPAs, administrative penalties, litigation and historical claims. Accordingly, an accounting firm’s regulatory and claims history may have a direct impact on both the availability and cost of professional liability insurance.

Accounting firms must submit evidence of their insurance coverage and information regarding claims made during the preceding year through the unified CPA industry supervision platform by May 31 of each year. A firm that uses its professional risk fund to offset the required insurance coverage must also submit its audited financial statements for the preceding year, with the year-end balance of the professional risk fund disclosed in the notes. Any amendment to, or termination of, the insurance policy must be reported within ten working days.

IV.What the Amended CPA Law Means for CPA Firms in China and Global CPA Firm Networks

The Amended CPA Law and the Professional Liability Insurance Measures combine stricter professional conduct requirements with a more structured mechanism for compensating losses arising from professional negligence. The implications extend beyond the amount of insurance maintained by a PRC accounting firm. They also include the allocation of responsibility within global networks, documentation supporting audit judgments, overseas access to PRC audit files and coordination between local and global insurance arrangements.

Firms should review whether their audit files adequately demonstrate professional skepticism. The Amended CPA Law addresses circumstances in which a CPA fails to maintain due professional skepticism, perform necessary audit procedures or obtain sufficient and appropriate audit evidence and, as a result, issues an inappropriate audit opinion or report. Engagement files therefore should clearly document how the audit team identified and responded to fraud risks, challenged management assumptions, considered contradictory evidence and resolved significant audit issues. Firms should also establish clear escalation procedures where management withholds information, places inappropriate pressure on the engagement team, or may be coordinating with third parties to provide false or misleading audit evidence.

Global firms should review how PRC audit working papers are stored, accessed and transmitted. The requirement that audit working papers and archives be stored in China, together with restrictions on unauthorized overseas transmission, may affect global quality reviews, group audits, cloud infrastructure, data replication and the technical support provided from outside China. Pending further implementing guidance, firms should map the systems and workflows through which PRC audit files may be accessed from or transmitted outside China, determine the legal basis and any applicable approval requirements for each form of access or transfer, and coordinate these controls with their broader cybersecurity, data-localization and cross-border data-transfer compliance programs.

Firms should also reassess whether their professional liability insurance arrangements satisfy the new requirements. This review should cover the applicable aggregate coverage limit, available offsets for professional risk funds, retroactive and reporting periods, deductibles, defense costs, exclusions and the allocation of losses between local and global policy layers. Firms providing securities services or audits of financial institutions and other public-interest entities should calculate the required coverage by reference to the applicable partner-based formula and the RMB100 million minimum. Importantly, while insurance may mitigate civil liability arising from professional negligence, it will not protect firms or individual practitioners against liability arising from intentional fraud or collusion.

For global accounting networks, the impact of the new regime will be particularly significant where audit quality, cross-border technology, data arrangements and insurance coverage intersect. A defensible audit file, properly controlled access to PRC working papers and locally effective professional liability coverage should be treated as interconnected components of a firm’s implementation and compliance program.

1.http://www.npc.gov.cn/npc/c2/c30834/202606/t20260626_455830.html

2.https://www.nfra.gov.cn/cn/view/pages/governmentDetail.html?docId=1269522&itemId=861&generaltype=1

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