Regulator Sanctions New Jersey Audit Firm; PCAOB Says Company Didn’t Properly Audit Firms From China, Hong Kong

November 24, 2013 Leave a comment

Regulator Sanctions New Jersey Audit Firm

PCAOB Says Company Didn’t Properly Audit Firms From China, Hong Kong

MICHAEL RAPOPORT

Nov. 23, 2013 10:44 a.m. ET

The U.S. government’s audit regulator sanctioned a New Jersey firm Friday, saying it hadn’t properly audited companies from China and Hong Kong. The Public Company Accounting Oversight Board barred Acquavella Chiarelli Shuster Berkower & Co., an Iselin, N.J., firm, from auditing public companies for at least two years, after which the firm can reapply to the board. The PCAOB also fined the firm $10,000.David T. Svoboda, a former auditor for the firm, was barred from associating with a registered accounting firm, with the right to petition to lift the bar after three years. The firm and Mr. Svoboda settled with the PCAOB without admitting or denying the board’s findings.

The audit-oversight board said Acquavella Chiarelli failed to adequately plan its audits of Universal Travel Group and Home System Group, two Chinese companies, and Sinocom Pharmaceutical Inc. of Hong Kong. The firm also didn’t adequately supervise and review those working on the audits, the PCAOB said.

For Universal Travel and Sinocom, the PCAOB said, the firm also prepared consolidation and financial statements for the companies, and thus violated auditor-independence rules because it was effectively auditing its own work.

An attorney for Acquavella Chiarelli couldn’t be reached for comment. Mr. Svoboda couldn’t immediately be located. Universal Travel, Home System and Sinocom Pharma couldn’t be reached for comment.

The case is the third that regulators have announced in the last two months against small U.S. audit firms alleging that they failed to properly audit Chinese companies. The Securities and Exchange Commission settled with Sherb & Co. earlier this month and in September with Patrizio & Zhao LLC. Both firms settled without admitting or denying the allegations against them.

Regulators have been scrutinizing auditors and other “gatekeepers”—financiers, consultants and other advisers—for their roles in allegedly enabling misconduct by U.S.-traded Chinese companies. The SEC has brought more than a dozen cases against Chinese companies in the past couple of years, alleging accounting and disclosure problems that cost U.S. investors when the companies’ stock prices plummeted.

In September, Universal Travel and two former executives agreed to settle SEC allegations that, among other things, they had failed to disclose the company’s transfers of about $41 million in cash raised in U.S. stock offerings to unknown entities in Hong Kong and China.

The firm and the executives neither admitted nor denied the allegations.

The SEC has also banned Universal Travel from trading its securities in the U.S. because it hasn’t filed its annual and quarterly reports with the commission as required, and the commission has moved to do the same for Home System. Sinocom Pharma withdrew its registration to offer securities in the U.S. in 2011.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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