It only took six weeks. Just six weeks after issuing a glowing audit letter for Chinese reverse merger junker China Integrated Energy (CBEH), Big 4 accounting firm KPMG now says its audit should not be relied upon. CBEH, once a shell called Intl Imaging Systems (IISY), has been the subject of a wonderful series of exposes by Alfred Little. Check them out here.
Here is what KPMG had to say about CBEH‘s finances in the 2010 10K, available here, filed on the 16th of March, 2011:
In our opinion, China Integrated Energy, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of China Integrated Energy, Inc. and subsidiaries as of December 31, 2010, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the year then ended, and our report dated March 16, 2011 expressed an unqualified opinion on those consolidated financial statements.
In a CBEH 8k filing, get it here, from the 2nd of May, management discloses that KPMG had changed their minds. But CBEH’s comments really glossed over the language in the resignation letter. Accounting firms are notoriously gentle and terse in their communications, but this KPMG letter is one of the harshest ever seen at BuyersStrike! HQ. CBEH did attach the actual letter, as required, but it was in the form of a non-searchable JPEG. So, to save readers some time and effort, here’s what KPMG‘s letter actually said:
This leads to many questions. The most obvious one being “KPMG just how incompetent are your auditors?” How could the KPMG audit partner, who really should resign in shame, miss that he was signing off on an obvious fraud? KPMG management, are your employees in China that stupid or are they complicit?
Kindly allow your author to climb atop the BuyersStrike! soapbox for a moment to ask:
- Exactly what is the value of an audit?
- What work was actually performed by KPMG staffers?
- Did anyone with any experience at all oversee the staffers?
- How could the KPMG audit partner, who really should resign in shame, miss that he was signing off on an obvious fraud?
- Are KPMG employees in China that stupid or are they complicit?
- Are the accounting firms, like the exchanges which list this trash and the investment banks which sell it, the analysts, like Ping Luo, who hype it, and the apologists like Jesse, who defend it, just in it for the profits they hope to gain from selling out the West to the PRC? Have they NO shame?
Stepping back on to the ground, a more practical question might be “For which other Chinese reverse-merger clients has KPMG provided possibly (probably?) worthless audit letters?”
One KPMG client that immediately springs to mind is Fushi Copperweld (FSIN).
FSIN, like CBEH, is just another piece of reverse merger Chinese garbage, and FSIN President and Director “Christopher” Wang Wenbing served, until his sudden resignation the 3rd of May, as a Director and member of CBEH‘s asleep at the wheel Audit Committee.
Let’s dig through FSIN, C-Wang Wenbing, KPMG’s other Chinese clients, and ex-CBEH director and Audit Chair Larry Goldman sometime soon. Real soon.