Fraudulent invoice cases often involve numerous parties and complex fund flows. Investigative authorities frequently engage third-party institutions to prepare audit reports to determine whether funds were recycled or invoice fees were paid, thereby transferring relevant parties for prosecution on charges of fraudulent invoicing. In practice, many prosecuting authorities tend to accept the conclusions of third-party institutions, sometimes even over-relying on audit reports to the extent of “substituting examination with certification”—a practice that severely violates fundamental principles of criminal procedure. This article analyzes and discusses audit reports through the lens of a specific false invoicing case.

I. Case Introduction

Company A is a state-owned steel enterprise producing a diverse range of high-quality steel products. Due to the superior quality of its steel, Company A attracted numerous steel-consuming enterprises and individual buyers. To mitigate tax risks, Company A established transaction thresholds, excluding natural persons and small-scale taxpayers who might not require invoices. Individual B primarily engaged in steel trading, profiting from the price difference between purchasing and selling steel. Unable to meet Company A's requirements, Mr. B sought to purchase higher-quality steel from Company A for resale to retail customers to maximize profits. He therefore collaborated with Company C, which purchased steel from Company A under its own name. Company C then sold the steel to Mr. B, who subsequently resold it to retail customers, forming a business chain: “Company A → Company C → Mr. B → Retail Customers.” Regarding goods flow, Company C used goods transfer certificates as the basis for warehouse entries and exits, with steel being picked up directly from Company A by either Company B or retail customers. For capital flow, Company B first advanced payment for the steel using personal funds to Company A's private account. At month-end, when Company A issued consolidated invoices, Company C transferred the payment from its public account to Company A's public account. Subsequently, Company A refunded the advance payment to Mr. B's account via its private account. Mr. B then transferred an equivalent amount to Company C's private account. During this process, Mr. B also collected payments from retail customers for the steel. For invoicing, Company A issued VAT special invoices to Company C listing the goods as steel.

In early 2023, tax authorities initiated an investigation into Company C on suspicion of tax evasion. During the investigation, authorities discovered that Company C's business operations did not require steel as raw materials, yet it had obtained a large number of VAT special invoices for steel products. Consequently, authorities determined Company C was suspected of issuing fraudulent invoices and transferred the case to public security authorities.

Investigative authorities commissioned an accounting firm to audit the case. The firm issued the Special Audit Report on Company C's Suspected Issuance of Fraudulent VAT Special Invoices.

The audit findings revealed that Company C fraudulently issued input VAT invoices totaling over 30 million yuan (including tax). The 30 million yuan transferred from Company C's corporate account to Company A's corporate account included 70,000 yuan as invoicing fees, with the remainder flowing back to Company C's private account via Mr. B's account.

After review, the procuratorate determined that the audit report, issued by a certified public accountant, contained accurate conclusions. The case demonstrated clear evidence of funds being funneled back, with Party B receiving the invoicing fee. This corroborated the verbal evidence on record, sufficiently establishing that Company C had engaged in the act of having others issue false invoices on its behalf, while Party B had facilitated the issuance of false invoices. Consequently, the procuratorate brought public prosecution against Company C and Party B for the crime of falsely issuing VAT invoices.

II. How Are Audit Reports Applied in Cases Involving Fraudulent Invoicing?

The Notice of the General Office of the Ministry of Justice on Carrying Out the Cleanup and Rectification of Judicial Appraisal Institutions and Appraisers (Ministry of Justice Office Circular [2020] No. 27) stipulates: “For appraisal institutions and appraisers clearly engaged in appraisal services outside the ‘four categories,’ their registration shall be resolutely revoked in accordance with the law.” The Opinions of the Ministry of Justice on Further Deepening Reform, Strengthening Supervision, and Improving the Quality and Credibility of Judicial Appraisal (Ministry of Justice Document [2020] No. 1) stipulates: “Strictly implement registration management for the ‘four major categories’ of forensic medicine, physical evidence, audio-visual materials, and environmental damage judicial appraisal in accordance with the law. Conduct cleanup efforts for institutions outside these ‘four major categories’; those without legal basis shall not be permitted registration.” Accordingly, the registration management of judicial accounting appraisal has been phased out, leaving judicial accounting appraisal services without a legal basis. In complex and challenging cases of fraudulent invoicing, the flow of funds often becomes crucial for determining the amount of fraudulent invoicing. Judicial authorities struggle to accomplish this independently and typically rely on judicial accounting appraisal for verification. To avoid being classified as judicial accounting appraisal opinions, many investigative agencies in practice commission accounting firms to issue audit reports instead of judicial appraisal opinions from judicial accounting appraisal institutions. Since 2020, audit reports have been widely utilized in fraudulent invoicing cases.

III. What Constitutes an Audit Report?

The audit report for fraudulent invoicing cases is defined in China Auditing Standard No. 1501. An audit report refers to a written document in which a certified public accountant expresses an audit opinion on financial statements based on the execution of audit work in accordance with auditing standards. Since the audit report for fraudulent invoicing cases does not audit the entire financial report but rather specific data and content, it is referred to as a special purpose audit report in judicial practice.

In terms of classification, the audit report falls under attestation engagements. According to the Basic Standards for Attestation Engagements of China, an attestation engagement refers to a service where a CPA issues a conclusion on the subject matter information to enhance the level of trust in such information among intended users other than the responsible party. An audit report is the opinion issued by a CPA, in accordance with auditing standards, on the fairness of the subject matter's financial position, results of operations, cash flows, and other attested information.

In terms of basis, the information used by a CPA to reach an audit conclusion and form an audit opinion constitutes audit evidence. Audit evidence includes information contained in the accounting records that form the basis of financial statements and information obtained from other sources. Examples include checks, electronic funds transfer records, invoices and contracts, general ledgers, and subsidiary ledgers. During the audit process, the CPA may employ audit procedures such as inspection, observation, inquiry, confirmation, recalculation, re-performance, and analytical procedures—individually or in combination—as needed to obtain sufficient and appropriate audit evidence. Thus, the materials underlying the audit report primarily manifest as accounting data.

In terms of conclusions, audit reports contain different types of audit opinions. In addition to unqualified opinions, there are three types of non-unqualified opinions: qualified opinions, adverse opinions, and disclaimers of opinion. When, based on the audit evidence obtained, the auditor concludes that the financial statements as a whole contain material misstatements or cannot obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatements, the auditor shall issue a non-unqualified opinion in the audit report.

IV. What Type of Evidence Does an Audit Report in a Fraudulent Invoice Case Constitute?

The author believes that determining the evidentiary category of a document cannot be based solely on its title but must be assessed according to its substantive content—a principle equally applicable to audit reports. In judicial practice concerning fraudulent invoicing cases, two primary viewpoints exist regarding the evidentiary classification of audit reports. One perspective holds that audit reports constitute documentary evidence. For instance, in the fraudulent invoicing case of Li Mou (2025) Yu 1481 Xing Chu 302, the prosecuting authority presented documentary evidence including transaction details of involved funds and audit reports to substantiate the charge of fraudulent invoicing against Li Mou. The other view holds that audit reports constitute expert opinions. For instance, in the Guangdong Company (2023) Yue 1973 Xing Chu 2326 false invoicing case, the prosecution cited audit reports and other expert opinions as evidence supporting the charge that the company committed false invoicing crimes.

(i) Are audit reports considered documentary evidence?

Documentary evidence refers to written documents or other physical materials that prove case facts through content recorded or represented in text, symbols, graphics, etc. Its core value lies in directly or indirectly proving relevant case facts through the ideas it records. In fraudulent invoicing cases, if an audit report issued by an accounting firm expresses opinions on financial statements strictly in accordance with auditing standards, it can directly prove the reliability of the enterprise's financial statements and thereby indirectly prove whether the enterprise engaged in genuine business operations. In such circumstances, the author believes it can be characterized as documentary evidence.

(ii) Is an Audit Report Considered an Expert Opinion?

An expert opinion refers to the conclusion formed by an expert who employs scientific techniques or specialized knowledge to identify and judge specialized issues involved in litigation. In practice, the investigative authorities engage accounting firms not to issue opinions on the financial statements of the subject entity involved in the case, but rather to obtain opinions on one or more specific tax-related issues, such as cash flow or invoice flow. According to the Judicial Interpretation of the Criminal Procedure Law, “Reports issued by persons with specialized knowledge who are assigned or hired to address specialized issues in a case, either due to the absence of an appraisal institution or in accordance with laws or judicial interpretations, may be used as evidence. The examination and recognition of such reports shall be conducted by reference to the relevant provisions of this section (Examination and Recognition of Expert Opinions).” Accordingly, the author believes that audit reports in fraudulent invoicing cases should be reviewed and assessed in reference to expert opinions. Audit reports that do not meet the review standards for expert opinions should not be used as evidence.

V. Key Points for Cross-Examination When Using Audit Reports on Fraudulent Invoice Cases as Expert Opinion Evidence

Pursuant to the “Interpretation of the Criminal Procedure Law,” “Detailed Rules for Judicial Accounting Work of People's Procuratorates (Trial Implementation),” and “General Rules for Judicial Appraisal Procedures,” the key points for reviewing expert opinions primarily include: 1. Whether the basis for the expert opinion is lawful and sufficient; 2. Whether the types of evidence materials are lawful and complete; 3. Whether the scope of the expert opinion is lawful. Based on the aforementioned audit report for the fraudulent invoicing case, the following brief cross-examination points are presented:

(i) Insufficient Basis for the Audit Report

The audit report in this case was entirely prepared in accordance with Certified Public Accountant (CPA) auditing standards, following the audit approach for routine attestation engagements. It was not executed in compliance with relevant norms for judicial appraisal services, thereby fundamentally deviating from the proper course of appraisal work and failing to meet the evidentiary requirements for expert opinions.

(ii) Incomplete and Illegal Evidence Types in the Audit Report

1. The evidence types in the audit report are incomplete. According to Article 15 of the General Rules for Judicial Appraisal Procedures, “A judicial appraisal institution shall not accept an appraisal commission under any of the following circumstances:

where the appraisal materials are found to be untrue, incomplete, insufficient, or obtained through illegal means.” Referring to Article 17 of the Guidelines for Tax Forensic Examination Services (Trial Implementation), “Tax firms shall not accept examination commissions under any of the following circumstances: (2) where the examination materials are untrue, incomplete, insufficient, or obtained through unlawful means.” Accordingly, for cases where submitted materials are incomplete and cannot be remedied, accounting firms should decline to accept the commission. This is because conclusions drawn from insufficient examination materials may be subject to uncertainty. Since appraisal opinions aim to reconstruct objective case facts, their conclusions must possess clarity and credibility, which inherently depend on the completeness of evidence. In this case, the audit report only examined bank statements for certain individuals, omitting bank records of Party B's advance payments for steel materials to Company A and receipts from retail steel transactions. This omission caused the audit conclusions to deviate from objective facts.

2. The types of evidence used in the audit report are unlawful. According to Article 24(2) of the Detailed Rules for Judicial Accounting Work of the People's Procuratorate (Trial Implementation), “expert opinions shall not be formed based on non-financial accounting materials such as confessions of suspects, statements of victims, or witness testimony.” Under the Accounting Law and Auditing Standards, financial accounting materials primarily include accounting vouchers, accounting ledgers, financial accounting reports, and other accounting materials. Regardless of how the scope of accounting materials may be interpreted, verbal evidence is explicitly excluded and should not serve as the basis for expert opinions. In this case, the statements of relevant individuals clearly do not constitute accounting materials. The audit report's inclusion of these statements as evidence types is manifestly unlawful.

(iii) The audit report exceeded the scope of the expert opinion

According to Article 9 of the Detailed Rules for Judicial Accounting Work of the People's Procuratorate (Trial Implementation), "The scope of judicial accounting appraisal includes:

(1) Confirmation of historical cost of assets;

(2) Confirmation of the balance of assets and discrepancies in balances;

(3) Confirmation of financial transactions;

(4) Confirmation of operating profits/losses and investment profits/losses;

(5) Confirmation of accounting treatment methods and results;

(6) Other financial accounting issues requiring confirmation through examination and analysis of financial accounting materials." Accordingly, appraisal opinions may only determine objective financial facts and should not involve judgments on factual determinations or legal application, lest it lead to the issue of “substituting appraisal for adjudication.” In this case, the audit report's conclusion that funds were returned and that Party B received invoicing fees clearly oversteps judicial authority and violates the principles of objectivity and impartiality in appraisal.

In summary, pursuant to Article 98 of the Judicial Interpretation of the Criminal Procedure Law, “Expert opinions shall not be used as the basis for determining a case if they fall under any of the following circumstances: (1) the subject matter of the appraisal exceeds the business scope or technical capabilities of the appraisal institution; (6) the appraisal process and methods fail to meet the relevant professional standards; (9) other circumstances in violation of relevant regulations.” The audit report in this case lacks legal validity and should be excluded; it should not be used as the basis for determining the case.