Recently, our team was re-engaged by a client to represent them in a case involving a company suing a shareholder for damages to the company's interests. After a detailed review of the original accounting documents, we meticulously listed numerous procedural and substantive issues in the 'Audit Report' that formed the basis of the first instance judgment. We submitted a special verification report to the court, and the court hearing achieved the desired effect. We successfully overturned the 'Audit Report,' which the client and the original attorney had been unable to overturn. We reinitiated the judicial accounting appraisal according to our proposed appraisal items, appraisal time limits, and appraisal materials, reversing the unfavorable situation. More importantly, by applying for our team's certified public accountant to participate in the cross-examination as an expert assistant, we supervised the opposing company to produce complete and original financial materials and accounting documents to fulfill the appraisal procedure, indirectly achieving the purpose of the shareholder's right to know, and laying a solid foundation for our client to strive for maximum rights.

In litigation cases where similar specialized financial and tax issues directly affect the direction and outcome of the case, highly specialized appraisal opinions often become the focus of attack and defense. If there is a lack of professional knowledge and experience, the opinions expressed by the parties and their attorneys tend to be general and cannot get to the heart of the matter, making it difficult to convince the judge. In this issue, I will start with relevant concepts to lay the groundwork for further study and discussion of the role of professional financial and tax opinions in litigation.

To make good use of the important form of evidence that is 'appraisal opinion' in litigation activities, it is necessary to start with the concept of its carrier and understand the similarities and differences between appraisal, attestation, and judicial appraisal to distinguish right from wrong.

1. General appraisal and attestation are two similar concepts

Appraisal refers to the objective, fair, and authoritative technical opinion put forward by professional personnel or institutions with corresponding capabilities and qualifications entrusted by departments or institutions with corresponding powers or management functions, based on conclusive data or evidence, corresponding experience, and analysis and argumentation on a certain matter, as evidence for the entrusting party to handle disputes or handle approval matters.

Attestation refers to relevant facts or materials issued by professional institutions that can prove the authenticity of a certain matter. Attestation is generally used as a professional term. According to the *Basic Standards for Attestation Business of Chinese Certified Public Accountants* (Cai Kuai [2022] No. 1), it refers to the business of certified public accountants evaluating and measuring the attestation object according to standards, and putting forward conclusions based on the results, in order to enhance the trust of expected users other than the responsible party in the information of the attestation object. According to the *Basic Standards for Tax Attestation Business of Registered Tax Agents* (Guo Shui Fa [2009] No. 149), it refers to the activity of an attester accepting an entrustment, relying on his or her own tax professional ability and reputation, performing prescribed procedures, and evaluating and proving the tax-related matters of the attestation object in accordance with tax laws and relevant standards.

Both appraisal and attestation require professional institutions or personnel to put forward professional opinions on specialized issues, and the difference between the two is not significant except for the different requirements for the identity of the client. In other words, from a conceptual point of view, attestation can be regarded as a professional expression of appraisal in a special field.

2. There are many differences between specific judicial appraisal business and attestation business

The *Decision of the Standing Committee of the National People's Congress on Issues Concerning the Administration of Judicial Appraisal* clearly stipulates the concept of judicial appraisal, which refers to the activity in which appraisers use science and technology or specialized knowledge to identify and judge specialized issues involved in litigation activities and provide appraisal opinions. At present, judicial appraisals involving specialized financial and tax issues in judicial practice mainly include two types: judicial accounting appraisal and tax judicial appraisal. According to the definition in Article 9 of the *Provisions on the Classification of Judicial Appraisal Practice (for Trial Implementation)* (Si Fa Tong [2000] No. 159), judicial accounting appraisal refers to the use of the principles and methods of judicial accounting to appraise financial conditions such as accounting vouchers, accounting books, accounting statements, and other accounting materials through inspection, calculation, verification, and attestation. According to the definition of the China Registered Tax Agents Association in the *Basic Guidelines for Tax Professional Service Standards of Tax Agents Industry (for Trial Implementation)* (Zhong Shui Xie Fa [2019] No. 040), tax judicial appraisal refers to the activity in which a tax agent's firm where a tax service person is located accepts the entrustment of a handling authority during litigation to review, identify, judge, and provide appraisal opinions on tax issues involved in the litigation. In addition to complying with accounting standards, tax laws, regulations, and policies, the above-mentioned specific judicial appraisal business must also comply with the requirements of litigation legal norms, and its essential attribute is a judicial litigation activity.

Financial and tax attestation business is roughly divided into two categories: certified public accountant attestation business and tax agent attestation business. The former is specifically divided into three categories: historical financial information audit, historical financial information review, and other attestation business. The 'audit' that we usually talk about belongs to one of the certified public accountant attestation businesses; the latter includes three categories: tax declaration attestation, tax-related approval attestation, and other tax-related attestation businesses. Although the above-mentioned attestation business is also an independent third party using specialized knowledge of accounting, auditing, taxation, etc., and performing certain review procedures, the nature of its business is a social and economic supervision and evaluation activity performed based on the entrusted economic responsibility relationship, and it only needs to follow the corresponding business standards and industry guidelines. In other words, specifically in the field of judicial litigation, the standards of attestation can no longer meet the requirements of appraisal.

3. What exactly is the often-heard 'judicial audit'? What

First of all, 'judicial audit' is not a standardized audit type in China. According to the classification of *Principles of Auditing* by China Auditing Press, it is divided into national audit, departmental and unit audit, and social audit according to the audit subject; it is divided into internal audit and external audit according to the affiliation relationship; it is divided into financial and financial audit and economic benefit audit according to the audit object; it is divided into government audit and enterprise audit according to the nature of the institution. None of the above classification norms show the term 'judicial audit'.

Secondly, 'judicial audit' on the one hand highlights the 'judicial' purpose, that is, it can only be initiated by judicial organs or act as the client, and select an independent third-party intermediary agency with professional qualifications according to the work flow to make professional identification and evaluation of the specialized financial and tax issues involved in the litigation activities to assist judicial activities; on the other hand, it still maintains its 'audit' attribute, that is, it belongs to the attestation business that certified public accountants can obtain reasonable assurance, that is, certified public accountants reduce the audit risk to an acceptable low level, provide a high level of assurance for the audited historical financial information, implement the requirements of the *Basic Standards for Attestation Business of Chinese Certified Public Accountants* and the *Standards for Auditing of Chinese Certified Public Accountants*, and adopt a positive approach to put forward conclusions and issue audit reports.

Thirdly, if the 'judicial audit' meets the substantive standards of 'judicial appraisal', it can still be used by the judicial organ as the 'appraisal opinion' among the evidence; otherwise, even if the name contains the word 'judicial', its content is essentially only implemented in accordance with the relevant standards of attestation, and does not meet the basic requirements of 'judicial appraisal', it can only be expressed as a professional opinion in the litigation, which is equivalent to 'party statement' in civil litigation, and does not belong to the category of evidence that can directly prove the relevant facts of the case.

4. Relevant judicial adjudication opinions

1. In "Gansu Juli Door Industry Co., Ltd. v. Qingyang Taiyi Heating Power Co., Ltd., and Li Xinjun Company, Dispute over Profit Distribution," the Supreme People's Court's second instance ruling upheld the first instance court's commissioned "judicial audit" as an "expert opinion."

The second instance court held that: The "Audit Report on the Judicial Audit and Authentication of Profit Distribution Dispute during the Operation of Qingyang Taiyi Heating Power Co., Ltd." commissioned by the court of first instance, concluded that Taiyi Heating Power Company had a substantial amount of distributable profits, meeting the prerequisite for profit distribution. Regarding the appellant's claim that the "Audit Report" used unverified evidence as its basis and contained six specific errors, the case file shows that the court of first instance organized both parties to verify and inquire about the company's accounts. Objections to the "Audit Report" were also investigated and debated by both parties during the first instance trial. The appeal argues that there were unverified issues with the audit materials but fails to specify which materials were unverified; therefore, this court does not support this appeal. The other five specific issues raised in the appeal regarding the "Audit Report" are all factual issues, and the appellant did not submit sufficient evidence in the second instance to prove that the first instance judgment's relevant findings were incorrect; therefore, this court will not adjust them.

2. In "Chen Chengyu v. Inner Mongolia Changyu Stone Industry Co., Ltd., Contract Dispute," the Supreme People's Court did not recognize the original court's use of the "Attestation Report" as an expert opinion and its use as the basis for the judgment.

The retrial court believes that ： Expert opinions presented by parties during case proceedings, which were made in another case tried by a People's Court, should only be considered as general written evidence. According to Articles 76 and 78 of the "Civil Procedure Law of the People's Republic of China," expert opinions can only be applied for, formed, and used according to law within the trial of the current case. The "Attestation Report on Earthwork Stripping and Granite Mining Costs of Yushugou Granite Mine in Helin County" was an attestation commissioned by the Hohhot Intermediate People's Court at Chen Chengyu's request to Xingyi Accounting Firm. Because Chen Chengyu applied to withdraw the lawsuit, the Hohhot Intermediate People's Court has already processed the withdrawal. During the original trial of this case, Chen Chengyu did not submit an application for loss assessment to the original People's Court. The original trial court's use of the "Attestation Report" provided by Chen Chengyu as an expert opinion for cross-examination and determination violated the provisions of Article 76, Paragraph 1 of the "Civil Procedure Law of the People's Republic of China" and constituted an error in the application of law. Furthermore, according to the provisions of Article 78 of the "Civil Procedure Law of the People's Republic of China," even if the expert opinion was legally commissioned by the original trial court, if a party raises an objection to the expert opinion, the original trial court should notify the appraiser to appear in court to testify; otherwise, it cannot be adopted as evidence to determine the facts of the case.

      In the next issue, we will talk about the specific differences between judicial accounting appraisal and audit reports, so stay tuned.

1. "Gansu Juli Door Industry Co., Ltd. v. Qingyang Taiyi Heating Power Co., Ltd., and Li Xinjun Company, Dispute over Profit Distribution" (2016 Zui Gao Fa Min Zhong No. 528)

2. "Chen Chengyu v. Inner Mongolia Changyu Stone Industry Co., Ltd., Contract Dispute" (2014 Min Ti Zi No. 178)