At least a dozen Chinese companies missed a deadline to file annual results to U.S. stock exchanges on Monday, adding to fears of bad management and potential fraud in the world's biggest emerging market.
China may be the fastest-growing significant economy, but over the past year scores of its companies have suffered from accounting problems, seen their auditors resign, and been de-listed in stock exchanges from New York to Hong Kong.
The failure to file results on time is a red flag for investors. It suggests that a company is disorganized or, at worst, fighting with its auditors over the accuracy of its financial statements.
Monday was the deadline for U.S.-listed foreign companies to file their results for the year ended December, 2011. As of Tuesday morning, 12 Chinese companies had warned that they could not publish their reports on time.
"Some will just be people who are out of control and can't get the job done," said Paul Gillis, a professor of accounting at Beijing University.
Auditors have stepped up their scrutiny of Chinese companies over the past year in response to scandals including the collapse of Sino-Forest, a timber group once worth $6-billion (Canadian). In particular, auditors have improved their methods to confirm cash balances and detect counterfeit documents.
It was during results season last year that Deloitte resigned as auditor of Longtop, the Chinese software group, accusing its New York-listed client of "very serious defects," including faking its bank statements.
LDK Solar, one of China's biggest solar-panel makers which recently bought its German peer Sunways, said in a statement on Monday that it "needs additional time to finalize certain items in its fourth-quarter 2011 financial results."
New York-listed LDK said it expected to file its results within the next 15 days, a regulatory grace period.
Other Chinese groups that said the same thing included Qiao Xing Mobile Communication, which makes handsets, Ambow Education Holding, an education provider, and Vimicro International, a Nasdaq-listed chip maker whose shares have fallen 94 per cent since their peak in 2006.
China Cast Education, a Nasdaq-listed higher education provider, has blamed its inability to file results on former employees who had stolen its business licences, company seals, and computers used by its finance department.
In Hong Kong, at least five Chinese companies failed to file annual results before a deadline on March 30, prompting stock suspensions. Among them was Boshiwa International, a maker of children's wear that has a licence for brands including Harry Potter.
David Webb, a Hong Kong-based corporate governance activist, said missed filing deadlines are a cause for concern. "It often points to inadequacies in the internal reporting systems," he said. "If a company can't get its annual results together in a three month time-frame, the question is how much do they know about their business internally?",
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