Audit concerns highlighted at two more Carlyle firms in China

Ernst & Young's annual report on Concord Medical, released last month, concluded that the company has not maintained effective internal controls over its financial reporting because of a shortage of staff who comprehend US accounting rules.

In April, China Energy Recycling had to re-file its annual report after failing to comply with US requirements on self-assessment of internal controls. Two years ago, Deloitte raised a series of questions about the company's accounting practices - and had its auditing contract terminated within three months.

It has emerged in the last year that these kinds of problems are not uncommon among Chinese firms listed overseas, but particularly in the US. Real or apparent weaknesses have been preyed upon by short sellers and hedge funds, leading to drops in many Chinese mid-cap stocks. As a result, a number of management teams are trying to take companies private, in several cases with the assistance of private equity firms.

Hong Kong-listed China Forestry has been suspended from trading since January following allegations of accounting irregularities. The company announced earlier this month that it expected to post a loss for the first half of 2011, having earlier said that the investigation was having a negative impact on business. China Agritech was delisted from NASDAQ in May for failing to file its annual report on time. An independent investigation is currently underway into claims that the company misled investors about the size of its fertilizer business.

Carlyle, which is currently invested in 31 Chinese companies, told Reuters that it is a long-term investor in the country and committed to creating value for all its portfolio companies. A spokeswoman added that this process requires "experience, patience and persuasion."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Healthcare
• Cleantech
• The Carlyle Group