SA Moderators are still waiting to approve this instablog post so I copied it here:
NQ Mobile recently posted several new job listings on a Chinese job search website. One of them was for the position of "Internal Audit Manager". Some of the specifically listed qualifications included familiarity with Section 404 of the Sarbanes-Oxley Act as well asAuditing Standard 5.
(click to enlarge)
Both the IC report and Omar Khan mentioned issues regarding controls, the job posting provides more color into what these issues were, the nature of these issues posits a reasonable hypothesis for the delay of the 20-F.
To illustrate my thinking here are quotes from Omar Khan and from the IC:
Omar Khan in Recent Memo:
We realize that we not perfect as is the case with any company. In accordance with the findings of the Special Committee, we are committed to continuous improvement of many of our processes, controls and systems, enabling us to build an even stronger long-term company. While we work in parallel to complete our 2013 annual audit, we all remain laser focused on running the business and maintaining our growth plans that we have previously communicated.
Excerpt from the Independent Committee:
(vii) The Investigation Team found that the Company, during the period before its May 2011 IPO, had some lax internal controls and informal business practices; to a limited degree, these informal business practices persist. These findings, however, do not reflect fraud.
And to illustrate why this job posting is relevent to the above statements here is a summary of Section 404:
Summary of Section 404
Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures.
The registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.
To conclude, I believe that the delay in the 20-F is a result of the need for PWC to verify the adequacy of the internal control structure, as the system NQ Mobile previously had in place was found lacking, as the evidence from the job listings and memo suggests. Combined with the investigation into the company which largely exonerated it, there is no reason to expect anything other than an unqualified audit.
