Chinese cleantech firms under spotlight for financial disclosure troubles

U.S.-listed Chinese companies are facing growing scrutiny for inadequate or false financial reporting, and the investigation has extended to cleantech businesses as well. A-Power Energy Generation Systems (s APWR), a Chinese wind turbine maker, on Monday said it received yet another letter from the Nasdaq for failing to provide the required information to keep the company’s listing.

A-Power is one of the Chinese wind and solar companies whose governance and accounting practices have been under a microscope this year. Any bookkeeping problems will fuel a growing resentment toward Chinese companies’ ability to borrow heavily from their government to expand factories and cut costs. Some of the solar companies have drawn the ire of U.S. lawmakers and competitors. Solar panel pricing has fallen so quickly in recent years that many manufacturers, including the now defunct Solyndra, have found it difficult to compete. Solyndra is among the three American solar panel makers who filed for bankruptcy in the last two months.

The low prices have prompted allegations that the Chinese companies are flooding the market with solar panels at artificially low prices, and German company SolarWorld has been vocal about supporting a trade complaint against China. Prices for solar panels have fallen by about 40 percent this year so far, said Shayle Kann, managing director for solar at GTM Research.

A-Power has been in trouble with the Nasdaq for a while. Nasdaq halted the trading of the company’s shares in June after its independent auditor and some of the company’s directors resigned and the company failed to timely file its 2010 annual report. The U.S. Securities and Exchange Commission issued a subpoena for documents from A-Power over the summer.

The auditor, MSCM, resigned because its request that A-Power hire an independent accounting firm to look over its books didn’t happen, and that made it difficult for MSCM to complete its 2010 audit, A-Power said. Nasdaq delisted A-Power’s stock last week and has scheduled a hearing on Oct. 6 to consider the company’s request to be re-listed. A-Power’s shares are traded over the counter in the mean time.

A-Power’s trouble with financial disclosures comes at a time when many U.S.-listed Chinese companies are under investigation for similar accounting problems. The SEC took a closer look after several dozen Chinese companies started to announce the resignations of their auditors or financial record-keeping problems earlier this year, according to a Reuters’ interview (s tri) with the SEC’s enforcement director, Robert Khuzami, who added that the U.S. Department has gotten involved in the probe.

Khuzami didn’t disclose which companies are under the justice department investigation. But an example of a government probe involves software company Longtop Financial Technologies (s LGFTY) and the resignation of its auditor, Deloitte Touche Tohmatsu, in May. Deloitte said it found falsified financial records. The SEC has subpoenaed Deloitte for documents related to Longtop and in general is having a tough time getting records from Chinese companies and their auditors because of Chinese laws.

“Not having proper accounting and reliable audit review for publicly traded companies with operations in China is just not acceptable. We have to find a path to resolution of this issue,” Khuzami said.

Several Chinese solar companies have seen a turnover on their auditing committees this year, including LDK Solar (s LDK) and Trina Solar (s TSL). A report by Moody’s Investor Service in July singled out LDK and several others for their corporate governance and accounting “red flags,” reported Bloomberg.

Photo courtesy of Hans S via Flickr