Boshiwa International Holdings, the Hong Kong listed Harry Potter licensee, announced that its auditor Deloitte Touche Tohmatsu had resigned because "certain information" that it requested is "outstanding or explanations provided by the company are not to their satisfaction". It added that this "precludes the completion of the audit". One issue raised was the "existence and commercial substance of recorded prepayments of RMB 392 million with a supplier" as well as the commercial substance of recorded transactions with distributors and suppliers.
We have heard this story before. In the last fraud season, most frauds were disclosed when auditors resigned. Few recover once the auditor resigns. Boshiwa's stock plunged 42% before trading was suspended. I will be surprised if it ever trades again.
We are at the stage of calendar year audits where confrontations with auditors are likely to surface. For U.S. listed Chinese companies, the annual report on Form 20F is due on April 30, two months earlier than last year.
So hold on to your seat. I expect a few more of these in the next few weeks.