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The Huishan collapse and the Big Four auditing firms

op business and technology news for April 20, 2017. Part of the daily SupChina news roundup "He fled from Bo Xilai; now he wants to make 300,000 electric cars in China."
5 months ago
Lucas Niewenhuis

When Huishan, one of China’s leading dairy companies, lost 85 percent of its stock value at the end of March this year, it didn’t take long for Bloomberg to declare it a “poster child for weak corporate governance” and note the dangers of corporate debt in China. One writer in a piece for Sixth Tone, however, is now pointing the finger in a different direction: American auditing firms. Li Guangshou 黎光寿 writes, “KPMG, one of the world’s ‘Big Four’ accounting firms…had approved Huishan’s past three annual reports,” but “to date few have asked a key question: Why did a Big Four accountancy firm, with its scope and prestige, fail to detect fraud when given access to Huishan’s books?”

Huishan’s stock plunge had been preceded by Muddy Waters, an “activist hedge fund” as described (paywall) by the Financial Times, flagging Huishan as on the verge of financial collapse based on publicly available information. When it was revealed that Huishan was late in paying lenders three months later, Muddy Waters was proven correct. Therefore, Li argues, KPMG shouldn’t have given Huishan a green light, and the market dominance of the Big Four may have led to negligence.

By Lucas Niewenhuis
Lucas Niewenhuis is an associate editor at SupChina who helps curate daily news and produce the company's newsletter, app, and website content. Previously, Lucas researched China-Africa relations at the Social Science Research Council and interned at the Council on Foreign Relations in New York. He has studied Chinese language and culture in Shanghai and Beijing, and is a graduate of the University of Michigan.
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