Ernst & Young agrees to C$8 million settlement in Sino-Forest audit

Tue Sep 30, 2014 12:23pm EDT
 
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By Alastair Sharp

TORONTO (Reuters) - Accounting firm Ernst & Young LLP [ERNY.UL] agreed on Tuesday to an C$8 million ($7.2 million) voluntary payment with Canada's biggest securities regulator over its audits of Sino-Forest Corp [SCLC.UL] and another China-focused company.

Ernst & Young, which has already paid C$119 million to settle civil lawsuits in the two cases, did not admit to any wrongdoing in the no-contest settlement, which was approved by the Ontario Securities Commission (OSC).

The settlement related to audits of the insolvent forestry company and clothing and footwear company Zungui Haixi Corp.

Sino-Forest had been listed on the Toronto Stock Exchange and at one point was valued at more than C$6 billion ($5.47 billion). But after a short-seller in 2011 alleged the company had exaggerated its assets, its shares tanked and were later delisted.

OSC staff said in the agreement that Ernst & Young did not exercise sufficient professional skepticism about Sino-Forest's stated timber assets.

In the case of Zungui, Ernst & Young identified a risk that the company could fraudulently inflate its revenue, but then disregarded evidence that it had done so, staff said.

In both cases, OSC staff said Ernst & Young failed to comply with generally accepted auditing standards.

Ernst & Young neither admitted nor denied the accuracy of the facts stated by the OSC staff, and it has agreed not to state that there was no factual basis for the settlement.   Continued...