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Jun 12, 2011
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Jun 12, 2011
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Jun 12, 2011
New accounting standards 'a bit like heart surgery'

Again With the Auditors! Accounting Irregularities Are Not Something New

If you find the time to peel yourself away from the Anthony Weiner denial-admission shame game (to the tune of Shaggy’s “It Wasn’t Me”), let’s bring it back to a G-rated discussion on accounting fraud.   Ok, maybe that’s not exactly the theme of a Disney movie (although determining Buzz Lightyear’s tax status as a ‘space ranger’ might be interesting), but given what we have been exposed to this past week, accounting fraud is bland.

In our last post, we discussed the risks involved in Chinese reverse mergers. We now know the SEC is investigating auditors involved in financial assessments of many of these same Chinese companies.  Over 20 companies, all from the same family tree of roots in China and trading on U.S. exchanges, have had either accountants or auditors resign due to difficulty in discerning the actual profits and losses accrued by these companies. A lot of the time the auditors simply are unable to confirm the amount of money a company has in the bank.  Most notably, Deloitte & Touche resigned as the auditor of Longtop Financial Technologies ( NYSE: LFT ) citing Longtop management’s meddling in the finances of the company as a serious hindrance to properly assessing the company’s financials.  If you do not know for certain how much money a company has, then it seems like a basic, understandable reason NOT to invest.  This is not a nuanced, complex fraud (Enron) or one that preys on naïve investors (Danny Pang). This is vanilla-flavored fraud.

Source: Forbes (blog)