Insufficient evidence for a proper audit, say independent auditors of China Fibretech

INDEPENDENT auditors have been unable to find sufficient appropriate audit evidence relating to China Fibretech's financials for its financial year ended Dec 31, 2015, including compensation claims made by three customers against a subsidiary of the company.

China Fibretech, the troubled mainboard-listed dye maker, on Wednesday released a report by its independent auditors RT LLP (see amendment note) which revealed a lack of evidence for them to provide a proper audit of the company's financials.

The report said: "We have not been provided with or been able to obtain any independent evidence that would be sufficient and appropriate for our audit purposes to conclude on the claims, their validity and their accounting treatment and disclosures."

It added: "Consequently, we are not able to determine if the claims should be accounted for as provision for compensation and neither were we able to verify on the company's obligation to pay. Accordingly, we are unable to conclude on the nature and quantum of the provision and disclosure."

On Sept 29, 2016, China Fibretech said that executive chairman and chief executive officer Wu Xinhua and non-independent director Wu Dezhi had authorised payment to three customers, who allegedly told the firm that they had suffered damages and financial losses totalling about 470 million yuan (S$96.53 million) from products made by its wholly owned subsidiary, Shishi Simwa Knitting & Dye Co Ltd.

On Monday, the board of China Fibretech was reshuffled, in which Mr Wu Xinhua and Mr Wu Dezhi stepped down.

China Fibretech's move to reconstitute its committees was welcomed by the Securities Investors Association (Singapore), or Sias, and its president and CEO David Gerald on Tuesday.

Mr Gerald said in a statement: "Sias calls on the new board to engage with shareholders, many of whom have suffered heavy losses and have not been appraised of developments in the company in the past."

He added that the new board's immediate task is to focus on completing the audit, hold the annual general meeting and update the shareholders on the current status of the company, its operations and its plans moving forward "without excuses to give them hope".

Trading of China Fibretech's shares have been suspended since November 2015.

Amendment Note: An earlier version of the article incorrectly stated that RP LPP were independent auditors for China Fibretech's operations for the financial year ended Dec 31, 2015. This is incorrect as the independent audtiors were RT LPP. The article has been amended to reflect this.