As the followers of the Chinese reverse-merger sector are well aware, issues regarding accounting and corporate governance have played significant roles in triggering and sustaining the recent – though now turning – malaise in the stock prices of many small Chinese companies.
One of the foremost issues that has been discussed is the credibility of accounting firm BDO Limited’s audits. BDO Limited is the Hong Kong member firm of the international BDO accounting network and is a leading auditor of Chinese reverse-merger companies. BDO Limited’s clients include SkyPeople Fruit Juice (NASDAQ:SPU), Gulf Resources (GFRE), China Marine Food (OTCPK:CMFO), China Biotics (OTC:CHBT), and Orient Paper (NYSEMKT:ONP). Author Note: CMFO, CHBT and ONP have all been accused of fraud by several vociferous members of the investing community, over the past few months – as of yet, no fraud allegations have been proven. Critics of BDO Limited’s credibility primarily base their assertions on the fact that the firm’s predecessor, BDO McCabe Lo was the auditor of the proven Chinese reverse-merger fraud China Expert Technology (OTC:CXTI) (A more complete description of the detractors’ claims can be found HERE). While I agree that such a disturbing link should merit further due diligence and more caution, I disagree with the notion that this troubling vignette from BDO Limited’s past should mean that all of the firm’s auditing work is now suspect.
Apparently Grant Thorton, another large and well-regarded network of accounting firms, agrees with me. On October 7th, Grant Thorton’s Hong Kong member firm merged with BDO Limited, forming an enlarged firm that now has a staff of more than 1000 individuals, including over 50 partners, and a client-base of over 200 companies. Patrick Rozario, the CEO of Grant Thorton’s Hong Kong member firm had the following to say about BDO Limited:
"Our partners believe that in line with the fast expanding business of the Firm, the business opportunities in China and around the region, we are joining a successful firm which has a solid reputation in the profession and great strength in Hong Kong. BDO provides a well established structure and support, in particular with its capabilities in China, for us to further develop our business. And, going forward, the enlarged practice would be well placed to provide a stronger service platform in both Hong Kong and China and further enhance our position in the market. We are very excited about this opportunity and the potentials and benefits that this strategic move will bring to our clients, staff and the accounting profession as a whole." Source
This merger augurs well for all individuals who have an interest in Chinese reverse-merger companies that are audited by BDO Limited. This vote of confidence by Grant Thorton and the new resources available to the firm will likely translate into more thorough auditing processes. As a result, better information and greater confidence will be provided to long-investors and short-sellers, alike.
Disclosure: Author holds long positions in SPU, GFRE, CMFO, CHBT and ONP.