Another S-chip suspended over accounts
The shares of another Singapore-listed Chinese firm have been suspended over concerns about its bank balances.
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Auditor says it was unable to verify bank balances of subsidiaries
By Yasmine Yahya
25 March 2011
The shares of another Singapore-listed Chinese firm have been suspended over concerns about its bank balances.
China Gaoxian Fibre Fabric Holdings told the Singapore Exchange (SGX) last night that its auditors, Ernst & Young, ‘could not verify nor confirm the bank balances in the company’s subsidiaries’.
These subsidiaries are a polyester firm and a fibre dyeing company.
The suspension came just a day after the SGX urged all directors to be more vigilant about cash controls.
The irregularities at China Gaoxian were discovered as Ernst & Young was auditing its financial statements for the year to Dec 31 last year.
China Gaoxian asked for a trading halt on Tuesday and requested last night that this be converted into a suspension from this morning.
Its statement added: ‘The audit committee has instructed the auditors to carry out an expanded... audit and also met with the executive chairman and CEO, Mr. Cao Xiangbin, who has indicated that he will co-operate... and... instruct management to do the same.’
China Gaoxian is the latest in a string of S-chips - China-based firms listed here - that have been suspended over accounting irregularities.
Fibrechem, China Sun Bio-chem and Oriental Century have been suspended for more than a year because of such irregularities.
Last month, China Hongxing Sports and Hongwei Technologies were suspended after announcing in rapid succession that auditors could not confirm the cash and bank balances in their subsidiaries. Ernst & Young was the auditor for both firms.
Yesterday, Hongwei Technologies said that since the issue of bank balances has yet to be resolved, the SGX had directed it to appoint a special auditor to investigate the affairs of the company. The special auditor will report to the company’s audit committee and the SGX.
The spate of accounting scandals prompted the SGX to publish a statement on its website on Wednesday urging directors to exercise more care over complying with listing rules and corporate governance standards.
‘While the economic and liquidity situations have improved since 2009, directors and auditors should not relax their vigilance,’ it said.
‘Each board will need to review and assess the efficacy and adequacy of practical measures over the listed company’s cash and other critical assets in view of changes in operating environment, business activities undertaken, as well as longer-term plans.’
The bourse operator has also e-mailed listed firms with China operations to implement strict new measures to take greater control of their mainland subsidiaries.
The SGX asked companies to engage auditors and legal professionals to determine if their checks and balances and controls involving cash and seals are sufficient.
It wants the outcome of these reviews by May 31.
Corporate observers have welcomed the SGX’s move but note that it might not be enough to reassure investors.
Mr. David Gerald, president of the Securities Investors Association Singapore (Sias), wants the SGX to go even further: ‘Sias has proposed that... the SGX ensure that funds raised (here) by Singapore-listed companies having their operations, management and maintenance of funds overseas should have at least one independent director authorise any funds to be transferred to an overseas account.
Companies that want to reassure investors of their financial integrity will have to go beyond the minimum requirements, said corporate lawyer Adrian Chan.
‘The board of directors of not just S-chips but all listed companies with substantive Chinese operations should go beyond the measures required by SGX and see what they can do to increase public confidence.’
But while companies set to work cleaning up their books, more irregularities might crop up, warned Mr. Choo Chee Kong, non-executive chairman of S-chip Falmac.
‘A lot of Chinese companies cannot take stress tests. In the last few months, the economy has not been good and now that business is slower all the skeletons are coming out,’ he said.
‘Some of these companies feel that the regulators in Singapore are so far away and when they’re desperate, if they have some urgent need, they might not have the discipline to do things by the book.’
Mr. Choo has some personal experience with the matter. He is himself in the midst of resolving problems at two China-based subsidiaries of Falmac.
The legal representative of these units has refused to allow Falmac’s directors access to factory premises and all company records, including key financial records.