SGX worried over possible accounting shenanigans by China-based firms

The regulator is monitoring "perplexing" financial changes.

The Singapore Exchange (SGX) is keeping a close eye on several listed companies with large operations in China which have recently announced adverse and sudden changes in their financial positions.

A particular cause for concern is the rapid depletion of these companies' cash balance, assets and/or retained profits, said Chief Regulatory Officer Tan Boon Gin in his latest Regulator's Column.

"Several companies with large operations in China have recently announced adverse and significant changes in their financial positions under perplexing circumstances. Companies at risk include those from the textile and sporting goods, manufacturing, heavy industries, packaging, electrical and electronics, retail and chemical sectors," Tan said.

For instance, some companies reported customer claims for compensation more than 10 times the value of the original sales which is the subject to the claim. Others made significant loans and advances to business associates--which were not part of the normal course of business--only to have these debts written off as uncollectible.

"That these cases are surfacing at a time when China’s economy is slowing and exports and imports declining may not be a coincidence," he said.

Tan highlighted that the same scenario has played out during the Global Financial Crisis in 2008-2009, which resulted in the bankruptcy of some China-based companies.

"SGX is closely monitoring disclosures of companies, including those which show large swings in financial positions and performance. SGX expects auditors to undertake audit procedures to the standards expected for listed companies. Where shortfalls of audit quality have been observed, SGX will not hesitate to report these infractions to relevant authorities," the regulator warned.