China’s Sinovel Wind Group Sets Rules to Prevent Accounting Errors; One-Time Wind-Energy Champion Has Suffered Series of Setbacks

Updated August 2, 2013, 1:55 p.m. ET

China’s Sinovel Wind Group Sets Rules to Prevent Accounting Errors

One-Time Wind-Energy Champion Has Suffered Series of Setbacks

WAYNE MA

BEIJING—A Chinese company accused by U.S. prosecutors of stealing trade secrets outlined new measures to respond to separate accounting problems, as China’s onetime wind-energy champion struggles to recover from a series of setbacks.

Sinovel Wind Group Ltd. 601558.SH -0.74% said in a filing on Friday that it appointed a longtime official with its financial-planning department to the new post of chief auditor. The company also announced new rules and procedures to prevent future accounting errors, including more frequent inventory checks, on-site interviews and inspections, better training for middle managers and enhanced document verification.The move follows its disclosure in April that it mistakenly recognized revenue in 2011 from uncompleted projects. Sinovel said in May that it was cooperating with an investigation by the China Securities Regulatory Commission into “alleged securities violations.”

Sinovel said it took the measures in response to a warning it received in April from the Beijing branch of the CSRC. A spokeswoman for Sinovel said a separate investigation by the national-level CSRC into alleged securities violations was continuing.

The accounting issue adds to other problems that include U.S. criminal charges, in what is widely seen as a test case for U.S.-China intellectual property disputes. In June, the U.S. Justice Department alleged that Sinovel and two former employees stole source code used to control wind turbines from Massachusetts-based engineering firm AMSC and then shipped four turbines equipped with the code to customers in the U.S. Sinovel has said it is studying the charges and still hasn’t provided a formal response.

In March, Sinovel disclosed that it had overstated its revenue by 10% and profits by 20% in the first year after its successful IPO. The company said it discovered the errors after “self-examination” and would restate its 2011 and 2012 financial statements. Sinovel’s founder Han Junliang resigned as chairman less than a week later but remains on the board of directors.

Mr. Han’s successor, Wei Wenyuan, a major early investor and former head of the Shanghai Stock Exchange, left the company in May, just before Sinovel revealed the national-level CSRC investigation.

Mr. Han couldn’t be reached for comment, and Sinovel declined to provide contact information. Mr. Wei also couldn’t be reached.

Sinovel, once the world’s second-largest supplier of wind turbines, today is struggling to stay ranked among the world’s top 10. It reported a 58% drop in revenue last year and a net loss of 583 million yuan ($95 million) compared with a net profit of 598 million yuan in 2011. Last year it put 350 workers, or roughly 12% of its work force, on leave and announced plans in June to close four international subsidiaries.