UPDATE 1-Ernst & Young agrees to C$8 mln settlement in Sino-Forest audit

Tue Sep 30, 2014 12:20pm EDT
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(Adds details from hearing)

By Alastair Sharp

TORONTO, Sept 30 (Reuters) - Accounting firm Ernst & Young LLP 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 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.   Continued...