The Case Of Sino Forest And Ernst And Young

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The Effects of Fraud: The Case of Sino-Forest and Ernst & Young In today’s global economy, investors must rely on information provided by the various companies listed on the stock exchanges in order to determine if a company is a good investment, or a poor one. In order to make informed decisions, investors want to see financial statements that have been proven to be correct; they do not want to risk losing the amounts they have invested if they were to choose to invest in a company that was not being truthful about their financial standings. To reduce this risk, publicly traded companies must have and audit of their annual financial statements. These audits are meant to reduce the risk of misleading numbers skewing how the company is…show more content…
listed on the Toronto Stock Exchange). Though the situation of fraud appears to be black and white, what is there to be said about the auditors who do not detect the fraud committed by their clients? Where they incompetent in their audit of the financial statements, or were they somehow involved in the fraudulent activities? A case that demonstrates the consequences to auditors when fraud is found to have been perpetrated by a client is that of Ernst & Young and the lumber company, Sino-Forest. Sino-Forest is a Canadian-Chinese timber company that was listed on the Toronto Stock Exchange; before the fraud allegations, it was “the most valuable forestry company on the TSX.”(The Canadian Press, CBC, 2012) However, it was accused of fraudulently overstating its timber assets, supposedly located in China. Through its investigation, the Ontario Securities Commission found that “Sino held “undisclosed control” over the network of third parties through which it conducted purchase and sale transactions. In turn, these deals were backed by fraudulent contracts that were not drafted until the quarter after they allegedly took place and revenue from them was recognized.”(Koven, 2012) In other words, Sino-Forest did not inform the auditors, or the public, that they had control over their third-party suppliers and customers.
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