Lessons from being targets of fraud allegation
——What Chinese Securities Regulatory Commission should rethink about the wave of short selling of china concept stock and fraud allegation
As we learned in the class, in the United States, known as the country with the most perfect financial and accounting system in the world, a successive exposure of international corporation scandals and accounting fabrication has lead to bankruptcy of many famous enterprises such as Enron since the end of the 20th century. This contributed to the issue of Sarbanes - Oxley Act and presented accounting information distortion and risk management as global issues.
China, as an emerging economy, now is developing fast and many of Chinese companies seek chances to go listed abroad to collect capital and gain reputation in the world market. However, since regulation about information disclosure and auditing is not as rigorous as that in western countries, these companies are accustomed to looser regulation and are at an unfavorable position when they are listed abroad. This unfavorable position began to draw great attention from the public when Muddy Waters, the New York – based research company alleged in June, 2011 of fraud at Sino-Forest Inc. Such allegation began the implosion of what had been the biggest forest company on the Toronto Stock Exchange and pushed many other Chinese companies or Canadian companies with a Chinese connection to the unreliable blacklist for institutional investors. Some honest companies were investigated and such investigations resulted in a big loss in their stock prices. Canadian Public Accountability Board (CPAB) criticized that, for these companies, “auditors did not properly apply procedures that would be considered fundamental in Canada, such as maintaining control over the confirmation process”. It also found “a lack of professional skepticism” when companies’ reporting ought to have raised red flags.
There is a Chinese proverb which says that...