After raiding the residences of CPAs Shan Si-ta and Hau Li-li, prosecutors and investigators seized 15 boxes of bank accounts, financial statements and accounting documents related to China Rebar and Chia Hsin Food & Synthetic Fiber, for which the two have been responsible for certifying financial statements since 2004.

Shan, Hau and two assistant CPAs were all questioned by investigators and prosecutors over the possible irregularities they might have committed in certifying the financial statements of the two financially-troubled affiliates under the Rebar Group, whose founder Wang You-theng and his wife had fled to the U.S. after allegedly embezzling corporate funds.

The Cabinet-level Financial Supervisory Commission (FSC) recently found that the debt ratios of China Rebar and Chia Hsin Food & Synthetic Fiber had been on the rise over the past few years, all surging to over 85 percent as of the end of September 2006.

But Shan and Hau failed to unveil the growing debt ratios in their certified financial statements for China Rebar and China Hsin, only indicating that the two firms applied to a total of 24 creditor banks in August 2006 for extending the tenure for repayment, according to FSC officials.

The officials said whether the creditor banks would agree to extend the repayment period would have a lot to with whether the two companies could continue their business operations, but the two CPAs didn’t make concrete assessment on the issue, a major abuse of their duty.

Accordingly, the FSC revoked the two firms’ financial statements already certified by Shan and Hau, and handed them over to the prosecution.

Meanwhile, prosecutors and investigators will check to see if Shan and Hau were instructed to certify falsified financial statements. If so, they will be accused of violating the commercial accounting law and committing document forgery.

Just a few days ago, Lawmaker Tien Chiu-chin of the ruling Democratic Progressive Party urged the FSC to revoke the licenses of two accounting firms that endorsed the finances of the Rebar Group and The Chinese Bank~, a banking arm of the group.

The two accounting companies are the Taiwan branch of Ernst & Young and RSM International.

Tien said that to comply with the Securities and Exchange Law, the FSC should appoint separate accounting firms to conduct thorough investigations into the financial status of the Rebar Group companies endorsed by Ernst & Young and RSM International over the past three years.

She urged the FSC to propose bills modeled on the United States’ Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 — which was proposed after a series of scandals involving a number of U.S. firms including Enron Corp, which applied for bankruptcy in 2001.

At the end of 2001, it was revealed that Enron’s financial problems had been intentionally masked by accounting fraud. Several top Enron executive officers walked away from the company’s collapse with about US$1 billion.

The bill, proposed by U.S. Senator Paul Sarbanes and Representative Michael Oxley, allowed the U.S. government to establish the Public Company Accounting Oversight Board to supervise listed companies.

The bill also ensures that companies disclose their financial reports and sets restrictions on the behavior of top company executive officers.

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