November 13, 2018

big accounting trouble in little China

Grant Thornton Is the Latest Firm to Join the Chinese Auditor Resignation Jamboree

SGOCO Group, Ltd. issued a press release this morning to let everyone know that Grant Thornton's Chinese affiliate decided to take a walk on May 14th. They disclosed this with the SEC around 10 am on Friday, but with the Facebook circus going on, no one noticed. What's interesting is that the company filed Form […]

Big 4 Firms Are Totally Down with China Locals Taking the Wheel

As you may have heard, the Chinese government has told the Big 4 that they only want homers running their audit firms that are located within the Big C. While you might think that this might be problematic – what with all the troubles over there – the Big 4 obviously saw this coming because not […]

BDO Joins the Auditor Resignation Party

The firm has had about all the fun it can handle trying to audit Chaoda Modern Agriculture. In a statement Thursday, Chaoda said that in a letter on Apr. 26, BDO said that despite continuing with the audit for a prolonged period, it was not in a position to conclude. It said the move was […]

Auditing in China Sounds Like Pure Hell

Muddy Waters Director of Research, Carson Block wrote an op-ed for the Wall Street Journal today and he sheds some light on problems that Big 4 auditors are facing in China. And from the sounds of it, if you're used to the auditing standards in the west, then you have your work cut out for […]

Is the Next Wave of Auditor Resignations Coming?

Floyd Norris notes: Several Chinese companies that are registered in the United States missed the May 1 deadline for filing their annual reports and received two-week extensions. There are many reasons that a company’s report can be delayed, but given the recent history there is speculation that one or more companies might be fighting with […]

Wow, Deloitte Nearly Went a Month Without Resigning From a Hong Kong-listed Audit Client

It's been 26 days since Deloitte resigned as the auditor of Daqing Dairy, which is an impressive streak considering the number of days between the previous two resignations was seven. This time around, the Green Dot is walking on SouthGobi Resources Ltd.: Deloitte & Touch LLP has resigned as an auditor “on its own initiative” […]

Anyone Wanna Try and Ballpark the Number of Auditor Resignations From Chinese-listed Companies for 2012?

Earlier today we learned that Deloitte resigned as the auditor of Daqing Dairy Holdings Ltd, a Hong Kong-listed Chinese company. It was notable because this is the second resignation for Deloitte in [counting on fingers] seven days! That's not good! The other one was "baby products maker" and licenser of Harry Potter and Bob the […]

Muddy Waters CEO: There Are Some Big 4 Partners in China Conspiring to Defraud Investors

As you probably heard, the PCAOB officially put out a proposal earlier this week for audit partners to be named in the annual reports of public companies. It would also require “registered firms to disclose the name of the engagement partner for each audit report already requirethe form” and “disclosure in the audit report of other accounting firms and certain other participants that took part in the audit.”

While most Big 4 audit partners are probably feeling a little chapped by this whole proposal, there is at least one person going on record (by way of PCAOB comment letter) that feels that it doesn’t go far enough. That would be Carson Block, the CEO and founder of research firm Muddy Waters. In Block’s letter (in full on page 2) to the Board he writes that not only should the engagement partner be identified but that he or she should be putting their name on the audit opinion because “[it] will decrease investors’ future losses to fraud and gimmicky accounting by billions of dollars.”

That on it’s own is enough to get more than a few people riled up. But as we indicated, there are some conspiracy and fraud accusations as well:

Even the most reputable auditors in China seem to be in a race to the bottom. We believe that there are particularly egregious situations in which some Big Four partners in China offices have actually conspired with their clients to defraud investors. Further, it is a reasonable proposition that the conflict of interest inherent in the Chinese auditors’ business model also affects the quality of US company audits.

Now before your knickers in a twist, don’t forget that this is the guy who called Sino-Forest a “Ponzi Scheme for the 23rd Century” which more or less looks to be accurate. Further, if you consider all the trouble Big 4 firms have had with Chinese companies listed in the U.S. and elsewhere, it doesn’t seem to be that much of a stretch that some partners would just say fuck it and work with their clients to keep a lid on the shenanigans than go through the pain of actually doing their jobs.

Regardless, with these accusations the PCAOB may try to make another run at getting the Chinese to play ball.


Carson Block 102011

Chinese Gold Company ‘Respects’ Deloitte’s Decision to Kick Them to the Curb

Your auditor-of-a-Chinese-company-resignation news du jour:

Deloitte Touche Tohmatsu Ltd , the world’s largest accounting and consulting firm, has resigned as auditors of Hong Kong-listed Real Gold Mining , more than four months after the Inner Mongolian miner was reported to have filed conflicting accouting [sic] reports.

Real Gold, which halted trading in its shares on May 27. is under investigation by the Securities and Futures Commission for corporate governance breaches. The miner’s announcement to the Hong Kong stock exchange late on Thursday said it was looking for a replacement for Deloitte, which resigned on October 12.

“The company is disappointed that Deloitte has decided to resign at this time but respects its decision,” the firm said.

Deloitte resigns as auditors of China gold firm [Reuters]

China Freaks Out Over Five CPA Exam Questions Illegally Posted to the Internet

Can you guys imagine what would happen if this were to go down in the good old USA?

According to China Daily, answers to China’s national accounting exam (similar to the CPA exam in that it’s an exam professional accountants take to work in accounting, duh) were leaked over the Internet last week and some are concerned that this unfortunate turn of events might erode trust in the exam and – worse – the profession. As if China’s sketchy accounting practices didn’t already achieve as much.


Answers were posted to an Internet forum just before the 2011 Chinese National Uniform CPA Examination was to be taken on September 17 and 18.

Here in America, CPA review providers are given retired CPA exam questions to distribute to their students but are not allowed to share actual exam content. Not like they’d know what’s on the exam anyway – many major review course providers haven’t taken the CPA exam in 10, 15 or even 20 years. Back in those days, they’d hand out copies of old exams to study. Like actual exams. Since the CPA review crew is a close-knit bunch of OGs, it’s highly unlikely that any one of them would risk their close relationship with the AICPA to hand out exam questions to needy students.

In China, a former writer of architect exam questions was sentenced to 18 months in prison for leaking state secrets after he was caught giving his students copies of exam questions during tutorials. Different world, eh?

Anyway, according to the few Chinese media reports we’ve seen, five audit multiple choice questions and answers were posted to the Internet and the Chinese CPA exam folks are understandably in a tizzy over this. To put it in perspective, their audit section consists 47 questions worth a total of 105 points, and candidates must answer at least 60 correct to pass. So really? Five questions?

That’s not all. Apparently some candidates received texts asking if they might be interested in, er, peeking at the upcoming exams’ content.

“I began to receive at least five text messages a day selling exam questions a month before the exam took place. All of them claimed they could provide genuine questions and answers. They also promised a full refund if the questions were not genuine,” 28 year-old Zhu Hua told China Daily. “I wonder how they got my number in the first place, because I only provided my contact information when I registered for the exam.”

Was this an inside job?

The Chinese Institute of Certified Public Accountants (CICPA) has sworn to conduct an investigation into the leaks and to prosecute anyone found to have leaked this information to the full extent of the law. Prepare for hangings, people, this is serious shit.

Silvercorp Metals CEO Reminds Everyone That They’re a ‘Real Company’

As we’ve discussed, Silvercorp Metals hasn’t appreciated the anonymous letters floating around the Series of Tubes accusing the Canadian miner of accounting fraud and has stated that, save their assets in China, “this wouldn’t be happening.” What the company would really like is for these jerks to show themselves and cooperate with investigators. But until that happens, Silvercorp hired KPMG to poke around to calm all the fears out there. According to reports, the House of Klynveld will have a report out soon but in the meantime, Silvercorp CEO Feng Rui will address everyone who thinks that his company is just a bunch of Tonka trucks in a sandbox:

“We’re a real company and will fight against shorters and distorters,” Feng Rui, Silvercorp chief executive officer, said today at a meeting in Beijing.

Furthermore, the auditors in this matter, Ernst & Young, have carried out their duties to a T and if you think some bullshit letters are going to cause them (or Feng & Co.) to do things differently, you’d be wrong:

“Our auditing doesn’t have anything wrong, the allegations are fabrication,” Feng said today in an interview on the sidelines of the meeting.[…] “The allegations won’t prompt us to make any changes in the process of financial reporting and auditing,” he said

Frankly, it’s embarrassing that they even have to address this but you’ve given them no choice.

Silvercorp Says KPMG to Issue Fraud Allegation Report ‘Soon’ [Bloomberg]

Silvercorp Metals Asks That You Not Believe Anonymous Letters Alleging Accounting Fraud Just Because They Have Assets in China

As we’ve discussed, companies listed on North American stock exchanges that happen to have ties to China haven’t faired too well. The problem? Some dodgy accounting and disclosures. It’s caused a lot of angst amongst investors and there was enough concern that someone actually decided to wake up the PCAOB and SEC to let them know that something might not quite right over there.

Today’s news that Silvercorp Metals, a Canadian mining company who happens to do some work in China, is the subject of a letter that is making the rounds alleging accounting fraud probably doesn’t come as a surprise to anyone but it sure has irked the hell out of the company.

The allegations against Silvercorp are “entirely bogus,” Lorne Waldman, a Silvercorp spokesman, said today in a telephone interview. “If we didn’t have assets in China this wouldn’t be happening.”

And while they’re at it, the company will have you know that they were not created in a one those so-called reverse mergers that have everyone sketched out.

Waldman denied the mining company was created in a so- called reverse takeover, as was Sino-Forest. He said that Silvercorp’s auditor is Ernst & Young LLP, the same firm that audited Sino-Forest’s financial statements.

Oh, right. Ernst & Young. There’s no cause for concern since they’ve seen this before so they’ll probably just sit tight to see what happens. The silver lining for Silvercorp is that Roddy Boyd has written anything about them. Yet.

Silvercorp Says Accounting-Fraud Allegation in Anonymous Letter Is False [Bloomberg]