KPMG quits as Hontex auditor over 'gifts'
KPMG said it had resigned as auditor of troubled Hontex International Holdings after the sportswear company offered 'cash gifts' to KPMG auditors in exchange for covering up discrepancies in its financial statement last year.
In March, the Securities and Futures Commission suspended Hontex from trading and won a court order freezing the HK$1 billion the company raised in its December initial public offering. The regulator alleged the firm had overstated its financial results and misled investors about its finances in the prospectus.
KPMG said in its resignation letter, tendered on Monday, that after it reported the accounting problem and the cash gifts to regulators, it believed it could no longer audit the client's books. KPMG said it had found a number of discrepancies in Hontex's financial statements last year.
'KPMG also has concerns arising from the offer to certain members of its audit team of cash gifts,' Hontex said yesterday in an announcement that quoted the KPMG resignation letter.
KPMG had earlier reported the cash gift to the Independent Commission Against Corruption.
Last week, the anti-graft commission charged Leung Sze-chit, 32, a senior manager of KPMG, with allegedly receiving a HK$300,000 bribe from an unidentified person as compensation for covering up accounting problems in the prospectus for the global offering of Hontex in December. Leung was also charged with offering HK$100,000 to a KPMG junior employee to help in the cover-up. The case is pending transfer to the District Court.
'KPMG believes that the auditor-client relationship has been impaired such that KPMG cannot complete an independent audit of the company's [Hontex] financial statements for the year ended December 31, 2009,' according to the Hontex announcement. Hontex said it had approached new auditors to replace KPMG.
The firm has already missed the stock exchange's deadline, which requires all listed companies to report last year's financial results before April 30. Hontex blamed the delay on a disagreement with auditors.
Hontex did not say when its results would be released.
The stock exchange reserves the right to take 'appropriate action' against a firm that breaches the listing rules, which require all listed companies to report final results four months after the book close date.
Hontex, controlled by Taiwanese businessman Shao Ten-po, said in its listing prospectus that it produced fabrics and made garments for brands including Decathlon, Kappa and mainland sports chain Li Ning.
