extra credit - Chien Chiu Hsiung BUSN 70.2 June 30, 2011...

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Chien Chiu Hsiung BUSN 70.2 June 30, 2011 "Troubled Audit Opinions" - Floyd Norris Since Muddy Waters Research published its report on Sino- Forest Corporation committing fraud and that its shares are worthless, Sino-Forest have lost more than 70% of its value in 2 days, about $3 billion off its valuation. Bond prices have dropped and prices fell sharply. If fraud was committed, Ernst and Young will certainly be sued. There is less doubt that Ernst will deny responsibility because its letter clearly stated that management was responsible for the internal controls to make sure the statements are not misstated whether is due to fraud or error. Most of the time investors blame auditors for not detecting fraud in the companies. However, the rules states that auditors are not suppose to detect all frauds but to have a "healthy degree of skepticism." Stakeholders expect auditors to do more to detect fraud because they are paying them to audit. Chief executives of the six largest audit networks suggested investors to pay more for a "forensic audit" if they want to detect fraud, but it will not guaranteed of catching fraud. Some companies are easy to audit, but in Sino-Forest case, it is difficult because their headquarters are in Toronto and Hong Kong and operate over China. The company claims it manages two million acres of forest in China, but Muddy Waters argues that it is a lie and its operation is smaller. It also reports that the company structure is also suspicious because its revenues are run through "authorized intermediaries" where the organization pay their taxes to China and leaving less paper trail to follow. Investors are trying to decide who is right here. They want to know how Ernst audited the company and what records they have used.
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This note was uploaded on 10/19/2011 for the course BUSN 70.2 taught by Professor Staff during the Summer '11 term at CUNY Brooklyn.

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extra credit - Chien Chiu Hsiung BUSN 70.2 June 30, 2011...

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