Tag: China

Harbin Electric’s Ability to Timely File Financial Statements with the SEC Falls on One Lonely CPA

Today in odd things found in SEC filings, we were pointed to this 10-Q from Harbin Electric, Inc., “a Nevada Corporation, incorporated on July 9, 2003.” However, this gives you a little better idea about what Harbin’s business is:

Through its subsidiaries, the Company designs, develops, engineers, manufactures, sells and services a wide array of electric motors including linear motors, specialty micro-motors, and industrial rotary motors, with focus on innovation, creativity, and value-added products. Products are sold in China and to certain international markets.

There it is! Another reverse merger company operation. Of course, this could be a completely legitimate business that is making money hand over fist but if Roddy Boyd is writing about you, that could be a bad sign. But that’s neither here nor there. One interesting thing we found in the company’s Q is just how much the company depends on their SEC Reporting Manager (I’ve added some italics for emphasis):

We rely on the services of our SEC reporting manager to assist us in researching and resolving certain US GAAP accounting issues and preparing our consolidated financial statements.

We employ an SEC Reporting Manager who is a Certified Public Accountant in the United States to assist our internal accounting and finance personnel in resolving complex US GAAP accounting issues. From time to time we rely on her to conduct research on complex accounting issues relating to US GAAP and to provide advice to the Company as to how to comply with US GAAP. Although our SEC Reporting Manager is not involved in our day to day operations or the management of our accounting functions, she also assists us in our consolidation process and in preparing our consolidated financial statements and footnotes. If we were to lose the services of our SEC Reporting Manager, we would attempt to hire another similarly qualified person to replace her. The loss of the services of our SEC Reporting Manager, in the absence of a qualified replacement, could adversely impact our ability to accurately prepare our consolidated financial statements on a timely basis.

There’s really no way to know who this poor, lonely SEC Reporting Manager is but based on the disclosure, it seems pretty clear that if she were to meet with an unfortunate accident, Harbin would be up shit creek without a paddle (and there’s probably a hole in the boat).

Why, exactly, isn’t there an intern, temp, custodian, someone, ANYONE that serves as the backup QB? This is not immediately known. Perhaps the company broke the piggy bank paying for the reverse merger but it seems prudent that they at least throw in Ms. SEC Reporting Manager’s best girlfriend from high school or something.

Of course if you’re job hunting and have a decent résumé, you could always ring them up.

China Calls For a New International Reserve Currency That Isn’t the Dollar (Again)

Dean Baker of the Center for Economic and Policy Research writes via Business Insider:

The NYT told readers that:

“Beijing has few options other than to continue to purchase United States Treasury bonds, Chinese officials are clearly concerned that China’s substantial holdings of American debt, worth at least $1.1 trillion, is being devalued.”

Both parts of this statement are wrong. Beijing has the option to stop buying dollars from its exporters. The reason that the government accumulates dollars and other foreign currencies is that it buys the currency from the companies who are exporting to the United States and other countries.

If Chinese officials were that concerned about it, they wouldn’t keep selling us their useless crap, thereby continuing the vicious cycle of being forced to “cash out” in Treasurys on the difference. If we as Americans were that concerned about it, we’d stop buying the useless crap. Like the “Presidents of the United States” mugs I bought this weekend, which happened to have “Made in China” stickers slapped on the bottom.

On Saturday, after S&P downgraded the U.S. credit rating to AA+ (pretty sure you guys heard about that), Chinese officials said Washington needed to “cure its addiction to debts” and “live within its means,” harsh words considering our living beyond our means has been the main driver of China’s explosive growth in the last decade. ““The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the statement, released by state-run Xinhua news.

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets,” it said.

Wrong. The Federal Reserve is the largest creditor of the world’s former superpower (that’s us), and according to them, we can’t inflate fast enough.

“International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” Xinhua said.

Notice a pattern here yet? GAAP isn’t good enough, we need the IASB to tell us how to recognize leases. Now the dollar isn’t good enough. Not that it ever was, at least not in my lifetime or yours.

Better learn Chinese, people.

PCAOB, SEC to Be All Up in China’s Business Next Week

Perhaps you’ve heard that some U.S.-listed Chinese companies have had some trouble with their financial reporting. Often times this leads to CFOs quitting, auditors resigning or workpapers being held hostage. None of which are good. Occurrences such as these have been going on for a little while and more recently the SEC admitted that they had, in fact, heard something about it. Perhaps even more surprisingly, a Chinese official also confessed that some of these companies weren’t exactly on top of their shit and in some may not have the faintest idea of what they’re doing.

All this excitement has finally gotten the teams at the SEC and PCAOB worked up enough that it has been decided that they’re popping over to Beijing to meet with the country’s Ministry of Finance and the China Securities Regulatory Commission next Monday and Tuesday to see what’s what.

“This meeting is the commencement of our accelerated efforts with the People’s Republic of China to forge a cooperative resolution to cross-border auditing oversight. I believe we share a common objective with Chinese regulators to protect investors and safeguard audit quality through our mutual cooperation,” said James R. Doty, PCAOB Chairman.

The delegation will be led by Board Member Lewis H. Ferguson and include staff from the PCAOB’s Office of International Affairs and Division of Registration and Inspections, and the SEC Office of International Affairs and Office of the Chief Accountant. The delegation will meet with senior leadership of the Ministry of Finance and the CSRC.

“The purpose of this meeting is to provide an opportunity to exchange information about how each country conducts inspections of auditing firms and to move toward a bilateral agreement providing for joint inspections of China-based auditing firms registered with the PCAOB,” said PCAOB Board Member Ferguson.

Reuters reports that Ferguson considers the trip a “confidence-building exercise,” just in case you were still a little queasy on Sino-Forest, et al.

Statement on Delegation to China [PCAOB]
U.S. audit watchdog, SEC plan Beijing visit [Reuters]

Chinese Official: Some Companies Listed in U.S. Have ‘Flaws,’ May Not Know What the Hell They’re Doing

We understand that complying with financial reporting in the U.S. can be difficult, so don’t get too worried about it. But we do ask that you keep the workpaper hostage taking to a minimum.

China is looking into accounting issues involving Chinese companies listed in North America, an official at the country’s securities regulator said in the watchdog’s first public remarks since a series of accounting scandals. Corporate misbehaviour, unfamiliarity with the U.S. market and some practices involved in overseas listings had all contributed to recent investor distrust of Chinese companies, said Wang Ou, vice head of research at the China Securities Regulatory Commission (CSRC). “First, we have to admit that some of our companies may have flaws. Second, our (companies’) understanding of the U.S. market and the measures to tackle risk there may be inadequate,” Wang said at a conference in Beijing this weekend. “We have contacts with the U.S. and its relevant regulatory bodies and we’re studying the issue together.”

Oh, and it isn’t necessary to issue a press release when your auditor ties out your cash balances.

[via Reuters]

Yes, the SEC *Has* Heard About the Trend of Accounting Problems at Reverse Merger Companies

The Securities and Exchange Commission warned investors about the risk of fraud, accounting problems and other abuses at companies that obtain stock listings through so-called reverse mergers.

The warning on Thursday comes amid a rash of accounting scandals involving China-based companies listed on U.S. exchanges through reverse mergers, or mergers with U.S. shell companies. “Many companies either fail or struggle to remain viable following a reverse merger,” the SEC said in an investor bulletin. Investors should be especially wary of reverse merger operating companies that are “nonreporting,” meaning they are not required to file reports with the SEC, the agency said. “Keep in mind that information from online blogs, social networking sites and even a company’s own website may be inaccurate and sometimes intentionally misleading,” the SEC said. [Reuters]

Weikang Bio-Technology Felt Compelled to Issue a Press Release Announcing that Grant Thornton Successfully Verified Their Cash Balances with Bank Statements

Chinese companies certainly have had their share of problems with financial reporting in the U.S. but I had no idea that it would come to this.

The Audit Committee of the Board of Directors of Weikang Bio-Technology Group Co., Inc. (OTC Markets: WKBT.PK – News) (“WKBT,” “Weikang” or the “Company”), a leading developer, manufacturer and marketer of Traditional Chinese Medicine (TCM), Western prescription and OTC pharmaceuticals and other health and nutritional products in the People’s Republic of China, today announced that Grant Thornton (“GT”), one of the world’s leading organizations of independently owned and managed accounting and consulting firms, has verified that the cash amounts listed on the Company’s SEC filings for 2010 and the first quarter of 2011 are consistent with account statements obtained from WKBT’s banks directly by GT.

“Given the recent change in auditors and my new chairmanship of the WKBT Audit Committee, we authorized the Grant Thornton review to take place last week, and are now releasing the results,” said Jeffery Chuang, independent director and Chairman of the Audit Committee of WKBT. “Weikang continues to advance as a U.S. publicly-traded company and we are committed to high standards in the thoroughness of our financial information,” said Mr. Chuang, a U.S. CPA who is based in Southern California.

Obviously this is completely harmless compared to, say, threatening to take auditors hostage but as far as giant wastes of time go, it’s right near the top.

Chinese Company Wraps Themselves in the Security Blanket That Is an Unqualified Audit Opinion From PwC

You may have noticed that a number of Chinese companies have had some issues with their accounting. This typically leads to the company’s auditor quitting, the CFO resigning, an SEC filing explaining all of it and then the revelation of some embarrassing details to accompany it all. Like a video of company’s employees sleeping. Or taking audit workpapers hostage. The best part about these stories is that the companies typically go on the defensive, and some make claims about their prestigious auditors just moments before the shit hits the fan.

Today we bring you Li & Fung, Ltd., a supply chain manager out of Hong Kong. L&F has reacted to a recent report from UBS that has…wait…yes, called attention to an accounting change and that “the company’s future GAAP earnings might not fully reflect the profitability of operations and that the new revenue recognition policy may distort a declining margin trend.”

Li & Fung has reacted right on cue:

“These statements are misleading,” Company Secretary Terry Wan said in the statement.

“The company has disclosed the relevant accounting policies in note 1.1 of its 2010 accounts, which have been audited by PricewaterhouseCoopers and are in full compliance with the HKFRS (Hong Kong Financial Reporting Standards),” Wan said.

Li & Fung: UBS Report On Firm’s Accounting Policies Not Factually Accurate [Dow Jones]

Auditor Resignation Du Jour: Deloitte Didn’t Appreciate Their Audit Files Being Held Hostage

And yes the perpetrator, Longtop Financial Technologies, is a Chinese company.

As we mentioned, Deloitte had some decent reasons for kicking LFT to curb, among them:

(1) the recently identified falsity of the Company’s financial records in relation to cash at bank and loan balances (and possibly in sales revenue); (2) the deliberate interference by certain members of Longtop management in DTT’s audit process; and (3) the unlawful detention of DTT’s audit files. DTT further stated that DTT was no longer able to rely on management’s representations in relation to prior period financial reports, that continued reliance should no longer be placed on DTT’s audit reports on the previous financial statements, and DTT declined to be associated with any of the Company’s financial communications in 2010 and 2011.

And because it seems to be the standard narrative in stories such as these, Longtop’s CFO has resigned and “The Audit Committee has also initiated a search for a new auditor.” Although were not sure if there’s a firm out there that will pick up a client who has engaged in hostage taking.

[via Longtop Financial Technologies]

Today in Chinese Company Auditor Resignations: KPMG Doesn’t Appreciate Being Ignored

The House of Klynveld resigned as the auditor Shanghai-based ShengdaTech, Inc. effective April 29th after less than three years. According to the 8-K filed yesterday, KPMG was none too impressed with management blowing off their concerns:

KPMG previously informed the Company’s Audit Committee of certain concerns arising during its incomplete audits of the Company’s consolidated financial statements as of and for the year ended December 31, 2010, and the effectiveness of internal control over financial reporting as of December 31, 2010. These concerns included serious discrepancies and unexplained issues relating to, among others: (i) the Company’s bank balances; (ii) transactions with major suppliers; (iii) VAT invoices and payments; (iv) sales and payments for sales by third parties; (v) sales to the Company’s second largest customer; (vi) discrepancies between KPMG’s direct calls to customers and confirmations returned by mail; and (vii) concerns raised by directly confirming customer sales and accounts receivables.

In a letter dated April 19, 2011, KPMG informed the board of directors of the Company that in KPMG’s view the Company’s senior management has not taken, and the board of directors has not caused senior management to take, timely and appropriate remedial actions with respect to these discrepancies and/or issues, and KPMG stated that the continued lack of resolution of the issues would materially impact the financial statements for the year ended December 31, 2010 and possibly prior periods.

And as you might expect, this resulted in KPMG taking its audit reports and going home:

On April 29, 2011, we were also informed by KPMG, our former independent accounting firm, that disclosures should be made and action should be taken to prevent future reliance on their previously issued audit reports related to the consolidated balance sheets of ShengdaTech, Inc. and its subsidiaries as of December 31, 2008 and 2009, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for the years then ended and the effectiveness of internal control over financial reporting as of December 31, 2008 and 2009.

8-K [SEC via ShengdaTech]

PwC Provides Background, Q&A in Response to Reports on Shanghai Associate’s Death

It’s been just over two weeks since the death of Angela Pan, an audit associate in PwC’s Shanghai office. One report of her death have quoted doctors stating that “Based on her symptoms and her low white blood cell count, it’s reasonable to conclude that overwork led to a weakened immune system, which makes her more vulnerable to infections.” It was also reported she told a friend she was working 18-hour days and about 120 hours a week prior to her sickness and death. However, Shanghaiist (yes, that’s the Gothamist for Shanghai) published a portion of a statement from PwC that stated that Angela died from viral encephalitis not acute cerebral meningitis as had been reported. An internal email from PwC in China found its way into our inbox late last week and it seems to echo the press release and provides other details.

[Ed. note: the second paragraph included HR and press contacts for those needing them so I’ve omitted those here. It did state that the information should only “be communicated verbally.”]

The date on the email was April 20th and the Shanghaiist article is dated April 15th, so whether this communiqué provides additional details, it isn’t entirely clear. The most confusing statement for me in this email is “as a sign of respect to Angela and her family, we have made a decision not to clarify the misreporting in the media at this time.” Seems to me that the respectful thing would be to correct the “misrepresented” facts if they are in fact correct. Of course this is happening in China where we can only assume what qualifies as a “respectful” action might differ from what is respectful in the U.S. Regardless, it’s terribly unfortunate that a young woman’s death had to serve as a reminder for everyone to take a closer look at their own health and behavior, as well as how culture and working environment may cause some to feel pressure to be at work when they shouldn’t.

Did a PwC Auditor Work Herself to Death?

Pan Jie was a 25 year-old auditor in PwC’s Shanghai office, starting her career with the firm last October. She died of acute cerebral meningitis on April 10th, having “ignored the illness until a fever surged,” after catching the flu on March 31st. Reports have stated that Jie told a friend that “she had been working up to 18 hours a day and about 120 hours a week,” prior to her death.


A doctor quoted by one of the reports explained the cause:

Dr Wang Guisong, an expert in the neurosurgery department at Renji Hospital, said overwork can make people more vulnerable to infections. “Based on her symptoms and her low white blood cell count, it’s reasonable to conclude that overwork led to a weakened immune system, which makes her more vulnerable to infections,” Wang said. “When an infection worsens over time, people can develop acute cerebral meningitis.”

According to the story, PwC has denied that Ms Jie died from work-related fatigue but it’s hard to argue that her fatigue was caused by anything else. The firm is providing psychologists for employees, has sent a “team” to comfort Jie’s family and has even offered to assist with the cost of her funeral and this kind of outreach is admirable but the overarching culture within Big 4 firms is really what is of concern here.

Fatigue from overworking is not uncommon in the Big 4 life but when someone dies as a result of the fatigue, that’s will obviously get some attention (even if it’s just for a little bit). At some point it became acceptable for sleep – and health in general – to become of secondary importance when it comes to having a successful career. If you don’t believe me, look around you; everyone is exhausted and that’s part of the life inside a Big 4 firm. The pressures of performance in the name of client service are so great that people regularly come to work when they should be in bed or, in some cases, an emergency room. Of course there’s the macho contingent inside these firms that say “sleep is for the weak” and that’s the kind of attitude that perpetuates the culture of “getting the job done.” How is this acceptable? Not only can lack of sleep kill you, it doesn’t really do much for job performance. We’ve all seen people make big mistakes when they’re lacking sleep and yet no one considers the root cause. If you think skipping a few hours of sleep a night is worth to a few thousand dollars a year (at best) then you’ve got some seriously fucked up priorities.

I admit that people aren’t dropping left and right inside these firms due to lack of sleep but let’s quit pretending like working hours upon hours, putting your health at risk and coming into work looking like – pardon the expression – death warmed up is some kind of badge of honor.

Chinese Company CFO Resignation Du Jour: Qiao Xing Universal Resources Inc.

When is this officially a pattern? Or is it simply a trend? Qiao Xing CFO Jiang Aijun resigned today but have no fear investors! – the company has appointed a financial controller and is on the hunt for a new CFO.

Plus they’re planning to file their fiscal 2010 results a month ahead of schedule. The company’s stock was down 12% for the week prior to today’s announcement and unfortunately, all this fresh news doesn’t seem to have calmed anyone down. [Dow Jones, Earlier, Earlier]