Alarm bells are ringing for observers of the Evergrande crisis, with an announcement the auditor of another major Chinese property developer has resigned.
Asia Markets can reveal that Ernst and Young has decided to cut ties with Yuzhou Group Holdings Limited because of concerns around basic accounting processes.
Market research group GMT Research saya it’s “virtually unheard of for an auditor to resign this late in a December year-end audit.”
One GMT analyst, Nigel Stevenson, described Yuzhou as “the company with the amazing disappearing revenue.”
“It recognised full-year revenue of just RMB10bn in 2020, having booked RMB14bn in the first half of the year. Unconvincingly blamed auditor, covid and inexperienced staff”
Significant delays in audit process
In a statement, Yuzhou said Ernst and Young had tendered a resignation letter that listed several reasons for its decision, including that the progress of the 2021 audit was “significantly behind the original pre-agreed timetable.”
“There were a number of key outstanding matters, including but not limited to: the availability of accounting schedules, valuation reports and information in relation to the liquidity assessment of the Group,” Yuzhou said.
Yuzhou ‘on the brink’
Like fellow Chinese Property developer Evergrande, Yuzhou is reportedly at risk of not being able to pay its debts.
The company, established in 1994, recently sold its property service unit to free up cash and enable it to survive a liquidity crunch.
Earlier this month, Fitch Ratings announced it had downgraded Yuzhou’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘RD’ (Restricted Default) from ‘C’ on the completion of an exchange offer.
Next steps
Yuzhou’s Audit Committee says that the change of auditor will not have any impact on the annual
audit of the Group for the financial year ended 31 December 2021.
The Board has also announced it has resolved to appoint UniTax Prism (HK) CPA Limited as the new auditor of the Company with effect from February 25.
“The Board would like to express its gratitude and appreciation to EY for its professional and quality
services rendered to the Company during the past years and express its warm welcome to UniTax
Prism (HK) CPA Limited on its appointment as the auditor of the Company,” Yuzhou said.