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2012, May 23

KPMG Resigns as China Forestry's Auditor

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KPMG Resigns as China Forestry's Auditor

by CFO Innovation Staff, 06 January 2012
topics:
Auditing Law and Compliance
tags:
auditing China Forestry Holdings financial irregularities KPMG
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After issuing a “disclaimer of opinion” with respect to China Forestry Holdings’ financial statements for the year ended 31 December 2010, Big Four audit firm KPMG has opted not to stand for reappointment as the company’s auditor.

 
“KPMG resigned as auditors of the Company with effect from 5 January 2012,” China Forestry disclosed to the Hong Kong Stock Exchange. “The Board will fill the vacancy of KPMG as auditors of the Company as soon as practicable and will make an announcement in this regard.”
 
China Forestry describes itself as “one of the three largest, privately-held, naturally regenerated and plantation forest operators in China.” On its website, it claims to own and operate more than 171,000 hectares of forest land in Yunan and Sichuan provinces. It reported a loss of RMB2.7 billion (US$429 million) in 2010, in the report that KPMG issued a disclaimer of opinion.
 
The disclaimer “was due to the irregularities we identified during our audit and limitation in the scope of our work,” KPMG told the company in a letter.
 
“An independent board committee of the Company was established, whose findings cast serious doubt over the authenticity and reliability of records and documents of the Group and over the reliability of information and explanations provided to us by members of the management as well as by parties external to the Group.”
 
KPMG requested China Forestry to extend the scope of its investigations to identify all irregularities and those involved, trace how the proceeds of the company’s 2009 IPO was spent and reconcile details of recorded plantation assets. “We are still awaiting the results of the investigations,” KPMG said.
 
For the 2011 financial year, KPMG asked that “a number of other matters will need to be resolved.” These are verification of the ownership and valuation of plantation assets, valuation of lease prepayments, valuation and ownership of inventories of logs and related sales and purchase transactions, and estimation of payables for plantation assets and taxation matters.
 
China Forestry has apparently not come through on these demands, resulting in KPMG’s decision to resign. Trading in the company’s stock was suspended on 26 January 2011 as a result of KPMG’s doubts over the financial statements, and has yet to be resumed.
 
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