Home' A Plus Magazine : Feb 2013 Contents 12 February 2013
Auditors asked to enhance
IPO due-diligence methods
The China Securities Regulatory Commission
encouraged auditors to step up their approach
to due diligence in an effort to restore confi-
dence in the Mainland’s new stock market
listings. Bankers who attended a meeting
with the regulator on 8 January said auditors
were asked to use more behavioural analysis
when assessing potential IPO candidates, in-
cluding techniques used in the United States.
“A senior CSRC official mentioned the [U.S .]
Federal Bureau of Investigation’s people-read-
ing technique in particular as an example,” a
banker told the International Finance Review.
Mainland IPOs to pick up
this year, PwC forecasts
The number of initial public offerings in Chi-
na’s A-share market is expected to rebound,
PricewaterhouseCoopers forecast last month.
“PwC is expecting 200 IPOs to raise 130 bil-
lion to 150 billion yuan in 2013 by listing on
the Shanghai and Shenzhen stock markets,”
Frank Lyn, managing partner of PwC China,
said at a press conference in Beijing. The fore-
cast compares to 155 IPOs listed in 2012, with
total funds raised at 108.3 billion yuan.
Audit authority recovers
embezzled housing funds
The National Audit Office, China’s top auditing
authority, announced that 2.96 billion yuan
embezzled from affordable-housing funds in
2011 had been recovered. According to a re-
port by the auditing authority, its audit work
has cancelled about 7,000 households’ rights
to benefit from the housing.
Central bank balance sheet
shrinks for first time
Data from the People’s Bank of China indi-
cated that its balance sheet, which expanded
eightfold from 2002 to 2011, shrank for the
first time last year, the People’s Daily re-
ported last month. It showed that the central
bank’s assets totalled nearly 29 trillion yuan
at the end of November 2012, nearly 514.7 bil-
lion yuan less than the amount at the end of
Caterpillar, the world’s largest manufacturer of tractors and excavators, an-
nounced it had discovered accounting misconduct at a Chinese company it had
acquired in June last year.
This led to Caterpillar, which paid about US$700 million for ERA Mining Ma-
chiner y, writing down more than half its expected earnings for the last quarter
On 18 January, the manufacturer announced in a statement that an inves-
tigation of ERA and its subsidiary, Zhengzhou Siwei Mechanical & Electrical
Equipment Manufacturing Company, which provides equipment for the mining
industry, found “deliberate, multi-year, coordinated accounting misconduct.” As
a result, Caterpillar said it would take a non-cash goodwill impairment charge of
US$580 million, or 87 cents per share, in the quarter.
It also stated that the probe “determined several Siwei senior managers
engaged in deliberate misconduct beginning several years prior to Caterpillar ’s
acquisition of Siwei.” Caterpillar replaced these senior managers and said that
“ the actions carried out by these individuals are offensive and completely unac-
ceptable.” The company found discrepancies in November 2012 between the
inventory in Siwei’s books and its actual inventory.
Caterpillar ’s shares fell by 1.5 percent after news of the fraud broke out.
Caterpillar grapples with accounting
scandal over Chinese subsidiary
Deloitte opposes request by
SEC to resume audit case
Firm claims regulator contributed to impasse
Deloitte has asked a judge in the United States to reject a Securities and
Exchange Commission case forcing the firm to hand over work papers from
its audit of Longtop Financial Technologies, an allegedly fraudulent Chinese
Deloitte had previously resisted handing over the accounting documents,
citing Chinese secrecy laws.
Last month the U.S. regulator requested that the federal court case, which
began in May 2011, be reopened following a six-month hiatus when negotiations
between the SEC and the Chinese Securities Regulatory Commission failed to
reach a solution.
Deloitte’s lawyers filed papers saying that the case should be postponed
pending the outcome of the SEC’s recent administrative proceedings against
five accounting firms, including Deloitte, as part of an investigation into alleged
accounting fraud at nine U.S.-listed Chinese companies.
Deloitte also argued that the SEC’s issue is partly of their own making. “ The
SEC has long been aware that the CSRC forbids China-based audit firms to
produce audit work papers directly to the SEC, and yet the SEC chose to allow
China-based companies to sell securities in the United States despite those
restrictions,” the firm said in the papers it filed.
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