The Financial Supervisory Commission (FSC) on Tuesday announced that it was suspending two Deloitte & Touche Taiwan (勤業眾信) accountants, Benjamin Shih (施景彬) and Allen Chiang (江明南), for two years starting today, due to their failure in auditing Pharmally International Holding Co (康友製藥).
Shih and Chiang resigned as auditors for Pharmally International on Aug. 6, as the company’s management failed to provide information for their audit.
The company on Aug. 26 sued the two accountants for alleged breach of trust and issuing false attestation reports on the firm’s financial reports.
As the company failed to submit a financial statement for the April-to-June quarter, transactions of its shares have since Aug. 18 been suspended by the Taiwan Stock Exchange, affecting Pharmally International’s 12,000 shareholders, Securities and Futures Bureau Chief Secretary Kuo Chia-chun (郭佳君) said.
After examining the two accountants’ work papers from 2018 to last year, the bureau found that they had deviated from the standards required of auditors, Kuo said.
Pharmally International operates a unit in China’s Anhui Province, and has cash holdings and deposits at Huishang Bank Corp Ltd (徽商銀行) in Anhui, Kuo said.
Shih and Chiang did not scrutinize the company’s bank deposits and cash holdings even though they listed them as key audit matters, which are issues of most significance in an auditor’s professional judgement, she added.
The company’s financial reports regarding its deposits and the bank’s interest rates were stamped by Huishang Bank’s corporate seal, but the reports should have been approved by designated bank employees and signed off with their stamps, Kuo said, adding that Shih and Chiang did not ensure this was done.
The accountants also did not take any steps when they became aware of doubts about the existence of the bank deposits earlier this year, she added.
The cash and deposits accounted for 99 percent of Pharmally International’s total assets last year, the bureau said.
The two accountants also failed to scrutinize why the Chinese unit’s equipment was used as collateral for a loan of 237 million yuan (US$34.8 million) at the Bank of Ganzhou (贛州銀行) in the third quarter of last year, which made up 12.9 percent of the firm’s net worth at that time, nor did they consider revealing it in their financial reports, Kuo said.
The Taipei District Prosecutors’ Office has issued an arrest warrant for Pharmally International chairman Tony Huang (黃文烈).
Kuo said that the bureau is investigating to clarify the two accountants’ roles in the case and prosecutors would probe any false information in the company’s financial reports over the past few years.
The penalty against the two accountants was the severest since the commission voided the attestation permissions of two accountants at RSM Taiwan (廣信益群) due to their poor audit of Rebar Asia Pacific Group (力霸亞太企業集團) units in 2007.
Deloitte & Touche Taiwan in a statement expressed regret over the commission’s penalty and said that it would appeal the decision.
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