Tianhe’s Forensic Auditor Gives Thumbs Up

A forensic accountant hired to investigate questions raised about Tianhe Chemicals 2014 financial records found no fraud or accounting irregularities, the company reported last week.

The accountant also concluded that there were no discrepancies between Tianhes tax records and those at local tax collection offices, rebutting a key claim by a shadowy watchdog organization that accused the lubricant additive supplier of fraud two years ago.

The findings of forensic accountant Grant Thornton Advisory Services Ltd. would seem to be a key step toward Tianhes efforts to resolve questions about its 2014 results and reopen trading of its stock on the Hong Kong Stock Exchange, which has been halted for 19 months.

The American accounting firms report followed an eight-month investigation into several questions raised both by Anonymous Analytics, the organization that accused Tianhe of fraud after its 2014 initial public stock offering, and Tianhes former auditor.

Tianhe claimed that its former auditor became extra cautious after AA published a report claiming that the company had greatly exaggerated its sales revenues and made misleading statements about its other main business, the manufacture and sale of fluorochemicals. Investigation by the former auditor caused Tianhe to miss a March 2015 deadline for filing its 2014 results, triggering the halt in trading of Tianhes stock. The former auditor ultimately disclaimed its audit and resigned, leading to appointment of a new auditor, the issuing of requirements by the Hong Kong exchange and appointment of Grant Thornton.

One of Grant Thorntons lines of investigation was consistencies between tax records reported by Tianhe subsidiary DPF-TH and tax offices of Yi County and Nanjing City. AA had reported that sales revenues reported by Tianhe in the lead-up to its initial public offering were orders of magnitude larger than those that would have been indicated by publicly available value-added tax at the local government. Grant Thorton said it was advised by a Chinese legal expert that online records may contain errors and omissions and should not be considered authoritative. [F]ailure to verify such VAT invoices through the official website does not necessarily cast doubt on the authenticity and validity of the invoices.

Grant Thornton said it scrupulously gathered records of Tianhes tax payments from the local government and found no discrepancies with the companys own records.

Grant Thornton also reported finding no irregularities in the procurement, billing and installment of equipment that is part of a yet-to-be-completed capital project. Tianhe has described the project elsewhere as a plant that will upgrade base stocks.