Auditors On Alert Over Chinese Results

A new wave of scandals involving Chinese companies listed overseas could hit New York and Hong Kong in the coming weeks as the annual results season get under way with auditors on high alert for fraud, the Financial Times reported. Auditors are under great pressure this year to detect discrepancies in their clients’ results, having faced embarrassment and legal action in 2011 following dozens of accounting scandals at Chinese companies listed in North America. In the last fortnight, Deloitte has resigned as auditor of two Hong Kong-listed Chinese companies: Boshiwa International, a maker of children’s wear, and Daqing Dairy Holdings, which produces milk formula. Hundreds of Chinese companies listed in Hong Kong are preparing to file their financial results for the year ended December 2011 in the coming days ahead of a deadline on March 31. For those listed in New York, annual reports on Form 20-F are due by April 30, two months earlier than last year. Auditor resignations are extremely rare and are seen as a red flag by investors. Boshiwa’s shares tumbled 36 per cent on March 14 before being suspended from trading, after Deloitte resigned. In its resignation letter, Deloitte said it had “concerns about matters pervasive to the financial statements”, including the “existence” and “commercial substance” of transactions with certain suppliers. Boshiwa said it was “disappointed” with Deloitte’s decision to resign and would appoint a new auditor in due course. Paul Gillis, a professor of accounting at Peking University, said auditors have “upped their game” this year. In particular, he said, “auditors have significantly improved their processes for confirming the cash balances”, which were part of the majority of Chinese accounting problems that have been disclosed. Read more. (Subscription required.)