OSC questions Sino-Forest audits

The Ontario Securities Commission has released allegations against Ernst & Young LLP, former auditors of Sino-Forest Corporation.

It alleges Ernst & Young breached the Ontario Securities Act by failing to conduct their audits in accordance with relevant industry standards. The audits related to the 2007, 2008, 2009 and 2010 consolidated financial statements of Sino-Forest.

Read: OSC extends cease order for Sino-Forest and Sino-Forest founder exits

“Our investigation into Sino-Forest is a complex international investigation, and a major focus has been on whether gatekeepers such as auditors and other corporate advisors properly performed their role in protecting investors,” says Tom Atkinson, director of enforcement.

He adds, “Investors rely on auditors to conduct their audits in accordance with professional standards, particularly when foreign companies are listing on Canadian exchanges.”

Read: Investors wary of internal audits

In the statement of allegations, the OSC alleges Ernst & Young failed to perform sufficient audit work to verify the ownership and existence of Sino-Forest’s most significant assets. It also says Ernst & Young didn’t undertake their audit work on Sino-Forest with a sufficient level of professional skepticism.

Read the statement of allegations.

In response, however, Ernst & Young says it “cooperated with the OSC throughout the investigation relating to Sino-Forest.”

It adds, “We’re confident that Ernst & Young Canada’s work was conducted in accordance with Generally Accepted Auditing Standards (GAAS) and met all professional standards. The evidence we will present to the OSC will show [we] did extensive audit work to verify ownership and existence of Sino-Forest’s timber assets.”

On May 22, 2012, the OSC issued allegations of fraud against Sino-Forest and former senior executives. Those proceedings are ongoing.

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