(Yicai Global) Aug. 30 -- Ruihua Certified Public Accountants, which is the subject of two ongoing investigations by the China Securities Regulatory Commission, has sued the CSRC over a CNY5.2 million (USD728,000) penalty it imposed last year in a bold counterstroke that has stunned market observers.

A Beijing court heard the case on Aug. 27 but has yet to issue its judgment, the court's docketing website shows. Market participants find it "incomprehensible" for Ruihua to choose this moment to goad the CSRC as other investigations proceed.

The securities watchdog uncovered a false entry in the 2014 annual audit report of Ruihua client Chengdu Huaze Cobalt & Nickel Material. It ordered the Beijing-based auditing firm to forfeit CNY1.3 million (USD166,000) in business income and imposed a CNY3.9 million fine.

Ruihua argued at trial that the CSRC failed to return the firm's working documents and this denied it the opportunity to offer a comparative explanation. Ruihua has in fact discharged its relevant obligations, it contended, and therefore demanded that the court vacate the penalty decision, the China Securities Journal reported.

The CSRC claimed that the penalty rested on Ruihua's failure to implement applicable auditing standards, per the report.

Ruihua has also come under the regulator's lens for its client Kangde Xin Composite Material Group's alleged financial fraud and other charges of regulatory violations by Hunan Chinasun Pharmaceutical Machinery, another client, both of which have riveted the market's attention.

Editor: Ben Armour