Harry Potter Licensee Boshiwa Plunges as Auditor Quits

Boshiwa International Holding Ltd. (1698), the Chinese maker of children’s apparel that has a license for the Harry Potter brand, said Deloitte Touche Tohmatsu resigned as its auditor because of a lack of financial information. The shares plunged by a record.

Some information requested by Deloitte is “outstanding or explanations provided by the company’s management are not to their satisfaction,” Boshiwa said, citing the auditor. Boshiwa said it will delay publishing its annual results, according to a statement to Hong Kong’s stock exchange today.

The auditor resignation drove down Boshiwa’s stock by a record 42 percent. Investor scrutiny of Chinese companies’ accounting standards intensified last June when short-seller Carson Block alleged Sino-Forest Ltd. overstated its assets and cash balances.

“It’s another example of questionable corporate governance because we don’t know exactly why their auditor resigned,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong, who doesn’t hold any stake in Boshiwa. “The trouble is once you have one of these cases where auditors resign, bad news comes out afterwards.”

Boshiwa shares plunged as much as 42 percent to HK$1.50 in Hong Kong today, the most since it started trading in September 2010, before being suspended in afternoon trading. The Hang Seng Index gained 0.2 percent at the 4 p.m. closing.

Prepayment Concern

Deloitte Touche Tohmatsu was concerned about prepayments, including 392 million yuan ($62 million) to a supplier, and transactions between the company and some distributors and suppliers, according to a second statement from Boshiwa to the Hong Kong stock exchange today. Boshiwa cited a letter from the auditor.

Wilfred Lee, Hong Kong-based spokesman for Deloitte, declined to comment beyond Boshiwa’s statement due to a confidentiality agreement with the company.

Shanghai-based Boshiwa, which designs, develops and markets children’s clothing, footwear and accessories, has licenses for Bob the Builder, NBA, Harry Potter, Manchester United, Barcelona and Juventus, according to its annual report. The company said 2010 profit doubled to 251 million yuan on sales of 1.41 billion yuan.

Boshiwa said today it is “disappointed” with Deloitte’s decision to resign. The company said it’s identifying a suitable replacement and is considering setting up a special committee to investigate the matter. Deloitte quit on March 13.

The company said it needs additional time to gather information to complete auditing of the annual results and it won’t be able to publish them by March 31.

Accounting Irregularities

Vegetable producer Chaoda Modern Agriculture Holdings Ltd. and software maker Longtop Financial Technologies are among companies halted from trading after fraud allegations were made against them.

Citing valuation concerns, KPMG LLC resigned in January as an auditor for China Forestry Holdings Co., the Chinese timber company whose shares have been suspended since January last year because of accounting irregularities.

Sino-Forest (TRE), which counts Richard Chandler Corp. as its largest shareholder, dropped 74 percent on the Toronto stock exchange after Block’s research firm Muddy Waters LLC issued a report against the company. Sino-Forest denies the allegations.

Its shares have been suspended since August as it delayed reporting earnings and defaulted on two sets of bond payments in December. Richard Chandler is a billionaire investor whose investment company owns about 19 percent of Sino-Forest, according to data compiled by Bloomberg.

To contact Bloomberg News staff for this story: Michael Wei in Shanghai at mwei13@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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