E&Y quits as Sky China Petroleum’s auditors
Unauthorised cash transfer by SinoTech chief sets off string of resignations
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Unauthorised cash transfer by SinoTech chief sets off string of resignations
By LYNETTE KHOO
11 October 2011
An unauthorised cash transfer at Nasdaq-listed China company SinoTech Energy has set off a string of resignations - including one in Singapore.
Singapore-listed Sky China Petroleum yesterday said that Ernst & Young has quit as its auditors with immediate effect.
But it was quick to add: ‘As far as the AC (audit committee) is aware, there are no accounting treatment disagreements with E&Y and E&Y has not informed the AC if it is aware of any circumstances connecting with the resignation that should be brought to the attention of the company’s shareholders.’
It added that E&Y has issued unqualified opinions for its financial statements ended Dec 31, 2009 and 2010 and has not withdrawn its audit opinions on those statements.
But the news, released yesterday morning, was enough to send shares of Sky China diving 23 per cent to a two-year low of 7.8 cents.
Sky China said: ‘E&Y has not given any written reasons but confirmed to the AC that their resignation was triggered as part of an internal process of the E&Y worldwide group procedure arising from the resignation of Ernst & Young Hua Ming (E&Y HM), the E&Y China member firm, as auditors of SinoTech Energy Ltd.’
E&Y HM - along with the chief financial officer and the chairman of the audit committee of SinoTech - resigned last month over an unauthorised transfer of cash by SinoTech chairman Liu Qingzeng. The money went from a Chinese bank account held by a SinoTech Chinese subsidiary to a bank account he controls. Mr Liu is also chief executive of Sky China.
Besides quitting, E&Y HM withdrew its opinion on SinoTech’s financial statements ended Sept 30, 2010, saying that its opinion should no longer be relied upon.
The resignations in China had also come in the wake of claims by US blog alfredlittle.com that SinoTech’s ‘largest customers and suppliers are likely nothing more than empty shells with little or no sales or income’.
SinoTech has since rebutted the allegations, but has appointed an independent special committee to investigate the claims.
Sky China said that it has secured Mr Liu’s agreement on being barred from accessing its bank accounts and funds, and from seeking any control over its treasury, finance, and accounting functions.
Its AC is also satisfied that ‘there are adequate internal control measures currently in place to safeguard the group’s assets’. These measures include monthly bank reconciliations and periodic internal audit reviews. All payments above 500,000 yuan (S$100,600) require the joint approval of the CEO and the CFO.
The AC is also taking further steps to enhance internal control measures. It has instructed the CFO to go to China to verify cash balances and change the bank signatories of all material Chinese subsidiaries from the CEO to the COO (chief operating officer). Custody of all material subsidiaries’ banking seals will also be transferred to executive director Wu Chun Lan.
Sky China’s CFO will also review the books and records of all major subsidiaries and carry out due diligence on suppliers and customers to verify if there are any business relationships with those mentioned in the alfredlittle.com allegations against SinoTech.
Sky China said that it would be engaging another audit firm acceptable to the Singapore Exchange to review its internal controls over cash, receivables and key assets.