The CEO of US construction company Caterpillar took the hot seat yesterday. Doug Oberhelman accepted blame for approving the acquisition of a Chinese company that fudged its accounting records.
The Chinese company, Zhengzhou Siwei Mechanical & Electrical Manufacturing Co, inflated earnings and stock inventory that Caterpillar failed to uncover before it purchased the company last June.
Caterpillar told its shareholders on January 18th that the roughly $700 million company it bought is now worth just a fraction of that, about $120 million.
The accounting fraud will reduce Caterpillar’s fourth quarter earnings by about 87 cents per share.
Shoddy accounting practices by Chinese firms is problematic for US investors. Last December, the US Securities Exchange Commission charged five major accounting firms for the activities of their Chinese branches.
Those branches would not disclose financial information of nine Chinese companies the SEC was investigating, claiming it would violate state-secrets laws.
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