In the new era, asset valuation agencies are facing new challenges in terms of professional risks. The author has reviewed the regulations issued by the China Securities Regulatory Commission. 2012 year to 2015 Annual Inspection Notice, 2016 Year 5 The monthly case filing and inspection documents highlight issues encountered in asset valuation practice, aiming to examine the risks inherent in the asset valuation industry from an external regulatory perspective.

    The term “failure to exercise due diligence” appears frequently.

    Judging from the wording in the penalty notices issued by the CSRC over the past three years that the author has collected, all of them mention the term “failure to exercise due diligence.” This is also consistent with Article [blank] of the current Securities Law. 173 item, 223 item, 322 The definition of the responsibilities of asset valuation agencies. So, what exactly does “due diligence” entail? What does “due diligence” encompass? The author has noted... 2016 Year 5 The China Securities Regulatory Commission’s release on 6 The documents issued by the accounting firm and appraisal agency during their filing and inspection for regulatory purposes first introduced a definition of “diligence and due care.” Diligence and due care mean fulfilling one’s duties conscientiously and performing one’s responsibilities diligently. In my understanding, this involves two key aspects. First, “fulfilling one’s duties conscientiously” means that appraisal agencies and personnel must clearly define their roles and responsibilities in economic activities—neither falling short nor overstepping their boundaries—and perform their tasks with utmost dedication. This is a requirement related to professional awareness. Second, “performing one’s duties diligently” means that appraisal agencies and personnel must independently and objectively adhere to the standards and requirements applicable to their appraisal practice; they must carry out what they are required to do thoroughly and refrain from doing anything they are not authorized or permitted to do.

    Judging from the specific issues outlined in the CSRC’s announcement, due diligence primarily encompasses four key aspects.

    The first aspect is the lack of independence, as in Section ... 33 The first issue is that the practice procedures are merely “formalities” designed to meet the client’s needs, and the relevant reports are “tailor-made.” The second aspect involves inadequate adherence to implementation guidelines, which can be further subdivided into failure to conduct necessary on-site investigations, failure to gather sufficient appraisal data, failure to practice in accordance with applicable business rules, and failure to establish reasonable appraisal assumptions—such as in Article [number]. 23 First, the selection of key assessment parameters for some evaluation items lacks a reasonable basis; second, there is insufficient professional skepticism, as evidenced by... 29 The second issue is that the appraiser failed to independently analyze, investigate, and evaluate the appraisal materials provided by the client and the appraisal object, instead directly using these materials as the basis for appraisal calculations. The fourth aspect is that the professional judgment was unreasonable, such as in the case of... 31 Article: During the assessment process, important assumptions were unreasonable, parameters were selected improperly, and formulas were set incorrectly.

     Adhere to the three key premises to effectively manage practice risks.

    Given the diverse development models, varying personnel backgrounds, and differing organizational sizes within the asset valuation industry, there is no one-size-fits-all strategy for risk management—only enduring, fundamental principles remain constant. In the face of opportunities presented by supply-side structural reform, a strong emphasis on risk management must become the norm for asset valuation firms.

    Although there is no universally applicable risk management framework, several key aspects serve as the foundation and prerequisite for assessment institutions to carry out risk management: First, unity of purpose from top to bottom. Although asset valuation institutions exhibit diverse development models, the underlying prerequisite for successfully accomplishing any task remains the same—management support and employee dedication.

    Second, we must break free from the shackles of laziness. Returns and risks are not mutually exclusive; rather, they can develop in harmony. However, risk management, to some extent, puts the brakes on short-term gains—yet human nature tends to focus on immediate benefits while neglecting long-term advantages. When people engage in habitual activities, they often manage to shake off the grip of laziness. By contrast, when tackling pioneering endeavors, it’s frequently much harder to escape the trap of inertia and laziness.

    Doing something new or sacrificing short-term gains means facing an uncertain future. Often, people are reluctant to give up their established interests out of fear, and a lazy mindset can frequently become an obstacle to reform.

    Third, the wind of risk is blowing frequently. In the practice of risk management by asset valuation agencies, the project leader is the most critical link; even more important is the project leader’s risk awareness. Since the beginning of this year, the CSRC and stock exchanges have continuously issued regulatory announcements and penalty notices. In the author’s view, this reflects the ongoing “wind of regulation,” and participants in the capital market have demonstrably heightened their risk awareness. Regarding risk management at asset valuation agencies, the “wind of risk” must also blow consistently—not only must management recognize its importance, but it must also permeate the hearts and minds of every practicing professional. ( This article has been abridged. )