After a two year stalemate, China and the US signed a memorandum of understanding on enforcement cooperation last Friday, opening the possibility of US regulators gaining access to the audit papers of hundreds of Chinese companies listed on US exchanges. The agreement was signed between the US Public Company Accounting Oversight Board (PCAOB) and China’s finance ministry and its Securities Regulatory Commission (CSRC).
What are its ramifications? Read more
If a company suspends shares once amid fraud accusation, it could be merely unlucky. When it does it again six months later, it starts to look like a trend.
That is the unfortunate situation that Zoomlion, China’s second largest maker of heavy machinery, finds itself in now. Back in January, newspaper offices around the world received an anonymous letter accusing Zoomlion of falsely inflating sales, backed up by 76 pages of purported sales records. Zoomlion rejected the accusations as “false” and “groundless”. Its share price fell more than six per cent when trading resumed. The events of this week are eerily similar. Read more
Remember the tiff between US and Chinese regulators over accounting regulatory standards? You know, the one that resulted in the SEC charging the Chinese affiliates of the Big Four audit firms (plus BDO) with violating US securities law after the five firms allegedly refused to turn over audit work related to nine Chinese companies being investigated for potential accounting fraud?
Well, after a 10-month stand off, it looks like some progress is finally being made to avoid an accounting Armageddon that could have led to the wholesale delisting of Chinese companies on US stock exchanges. Read more
By David Mitchell of BDO
Africa is experiencing rapid economic growth and infrastructure development. In addition to the huge investment programmes, there is a strong pipeline of M&A activity and an increasingly sophisticated and growing financial and professional services industry.
With a strong demand for more British and international lawyers to go and work in Africa to help facilitate this, the opportunity for lawyers and accountants at any stage in their careers, whether newly qualified or senior partners, has never been better. Read more
January was a scary month for China’s machinery makers and their investors. First, Zoomlion was accused by a “concerned investor” of booking phantom sales, then Caterpillar accused its own recently-acquired Chinese subsidiary of accounting misconduct and took a $580m write down on the value of the deal.
Time for a ghostbusting analyst to bring some rational rigour to the sector. Read more
By Paul Gillis of Peking University
The SEC last week charged the Chinese affiliates of Ernst & Young, PwC, KPMG, Deloitte Touche Tohmatsu and BDO with violating US securities law after the five firms allegedly refused to turn over audit work papers related to nine Chinese companies that are being investigated for potential accounting fraud.
But the accounting firms may not have the most to worry about. The action could lead to Chinese companies being kicked off US stock exchanges. Read more
The clash between the US Securities and Exchange Commission and China over accounting regulatory standards probably won’t come to a head for another ten months. But the prospect that the SEC’s high-profile attack on the Chinese affiliates of the Big Four and BDO could lead to a wholesale delisting of Chinese companies from the US stock market appeared enough to spook investors. Read more
Investors who hope the accounting scandals involving US-listed Chinese companies will soon fade away should think again.
That’s the message from Paul Gillis, a Beijing-based accountancy expert. He says that there’s only a 10 per cent chance that the regulatory issues raised by the affair will be quickly resolved, a 70 per cent chance that the arguments will be “kicked down the road”, and a full 20 per cent chance of a Beijing-Washington bust-up which ends with the US forcing the delisting of American-listed Chinese stocks.
That would have repercussions far reaching far beyond the companies involved and their disgruntled shareholders. Read more
By Alexandra Stevenson
When considering the risks of investing in Chinese companies, Sino-Forest typically comes to mind. Investors got burned for not probing its opaque accounting. But there is also a fully-disclosed accounting detail that investors in Chinese companies would do well to get acquainted with.
It’s called variable interest entity (VIE). Read more
Short-sellers beware: shares in Toronto-listed Silvercorp Metals, the Chinese silver miner accused of fraud, are up more than 16 per cent in the past two days after it said earlier this week that KPMG Forensic published a report backing its financials. Read more
By Shaomin Li and Seung Ho Park of the Skolkovo Institute for Emerging Market Studies (SIEMS)
Behind the latest accounting scandals in many foreign-listed Chinese companies lies a widespread problem of data manipulation. It is nicely summed up in a modern Chinese parable: a locally-listed food company makes up a news release saying a flood washed away its turtles – a Chinese delicacy – and later issues another saying the turtles swam back when the flood receded. But the problem also shows up in hard numbers. Read more
Hong Kong-listed Yurun has been one of a string of recent casualties of the Muddy Waters saga – despite the fact that the short-seller has yet to utter a word on the Chinese meat producer.
The old adage of ‘buy on a rumour, sell on a fact’ appears to have turned on its head. Read more
After weeks of allegations from short-seller Muddy Waters, Sino Forest held an analyst call on Tuesday in a bid to assuage the concerns of investors – who have watched the share price plummet 70 per cent in recent weeks – and to announce first quarter earnings.
Maybe it was the awkward way in which a few analysts’ questions were cut off, or the way some questions were ignored entirely, that unsettled the market: immediately after the call, the stock fell 12 per cent on the Toronto Stock Exchange. It closed down 32 per cent. Read more