Deloitte defends 'good job' at Kelon

PUBLISHED : Saturday, 22 April, 2006, 12:00am
UPDATED : Saturday, 22 April, 2006, 12:00am

Deloitte Touche Tohmatsu's global chief executive yesterday defended the accounting firm's role as auditor of troubled Guangdong Kelon Electrical Holdings in response to reports that the auditor might face punishment from China's securities regulator.

'I have no reason to believe that any of our people were involved in creating, causing or participating in the problem of Kelon,' said William Parrett on the sidelines of the Boao Economic Forum. 'I think when all the facts come out, people will understand the good work Deloitte has done there.'

In September last year, former Kelon executives, including its chairman Gu Chujun, were arrested and accused of inflating sales and embezzling hundreds of millions of yuan.

The China Securities Regulatory Commission is investigating the company's financial reporting between 2002 and 2004.

Deloitte was the auditor for 30 months between 2002 and 2004 but the firm qualified its opinion in 2004 as to company sales, returns and allowances and resigned from the account after that audit.

'The reason we resigned from the account was because we said management was not committed to good or strong financial reporting and financial controls,' Mr Parrett said.

Last month, a Shanghai court rejected a case brought by an individual Kelon investor seeking an apology and compensation from Deloitte.

But after an April 7 hearing on the matter, the CSRC is deciding whether or not to punish Deloitte or the individual auditors involved, mainland media report.

A decision to punish the firm could lead to more investors bringing court cases under the mainland's newly-enacted securities and corporate laws.

Ironically, Mr Parrett is at the Boao forum to talk about reform of state-owned enterprises, particularly corporate structure reform and the introduction of better corporate governance.

'After the Enron and WorldCom crises, we took a look at all our policies and procedures and instituted a whole lot of changes at that time but we haven't done anything special in China because of Kelon,' Mr Parrett said. 'We feel like we've been defrauded in this situation as well.'

Deloitte is growing at an annual rate of about 65 per cent in the mainland in terms of revenue and staff numbers and Mr Parrett expects the Chinese operation to be the second largest in the world after the US within the next five years.