Question

[quantumvibes]

Some thoughts after talking to a fomer Big 8 CPA on what may or may not be happening.

PwC should be chomping at the bit to get 20f out and vindicate all the work they've done now that the IA is complete.

On the other hand, PwC may have been either prohibited or constrained from completing thieir normal Audit process untill the IA was complete.  Makes sense if they didn't want PwC covering their tracks if there was any complicity.

D&T and S&S get high marks and are the real deal.

Qualified opinions are only given if the numbers (revs,yidatong etc) cannot be relied upon.  A small restatement or material weakness in financial controls is not the same thing as a "qualified" opinion.  You can restate numbers if you have confidence what those numbers are based on.  A "qualified" opinion at this point would mean PwC could trust the #s and D&T missed something material.

If  the original 20F was due April 15th, If I remember correctly, or 3.5 months post YE under normal circumstances and we assume most or all of the YE audit process was substantially delayed or halted until the green light was given by D&T, then a lot of the YE work did not truly begin until late April or early May.  Now if we throw in a small restatement (think of the over accrual of stock option expense last year) it complicates things, particularly if it goes back to 2012,  At this point most of their other clients YE work is done so there should be capacity to throw at this as well as PwC's desire to get it done ASAP. So with the puts and takes and it should be no more than that 3.5 months to get it done from the point they actually started in earnest.

So if that's all the case, 7-8 weeks is not all that unreasonable as far as getting the 20F out given all that's happened and assuming there is some small restatement that may effect 2012.

Now that could be just rationalizing but I don't think so. I'm not happy with stock price or the delay but we're not really sure what is going on so I have tried to make sense of the facts.  If this was truly an independant investigation it is also likely that both the mgmt and auditors were kept in the dark until the investigators came to their conclusions.

So the facts are that is NQ is real business with real parnters and is not a fraud as reported by the IA.  If that statement is true, then the above best explains I believe the delay.  I don't believe it would fit with the IA "missing" something material that PwC now as to clean up and resign for.  But frustrating, I agree.

I think the stock price is as much affected by a lack of big buyers as it is by the shorts.  However, they won't return until the 20f is filed.  All IMO.

Throw in extremely cautious sentiment toward China with the delayed 20f filing and lack of big buyers and you have a shrinking pps...

I liked your conjecture on why the filing has been delayed.  However, in April Omar indicated that the auditors and DT were working off a set of schedules that seemed to point toward both reports coming out concurrently by April 30th.  Therefore, it would appear that some other issues are in the process of being resolved, maybe at the behest of the US side of PWC, before the 20f is filed.  The fact that Omar in his letter to employees cited the company's efforts to strengthen internal controls in response to the IA maybe suggests that this is at the heart of the delay...

[maplell2002]

Some thoughts after talking to a fomer Big 8 CPA on what may or may not be happening.

PwC should be chomping at the bit to get 20f out and vindicate all the work they've done now that the IA is complete.

On the other hand, PwC may have been either prohibited or constrained from completing thieir normal Audit process untill the IA was complete.  Makes sense if they didn't want PwC covering their tracks if there was any complicity.

D&T and S&S get high marks and are the real deal.

Qualified opinions are only given if the numbers (revs,yidatong etc) cannot be relied upon.  A small restatement or material weakness in financial controls is not the same thing as a "qualified" opinion.  You can restate numbers if you have confidence what those numbers are based on.  A "qualified" opinion at this point would mean PwC could trust the #s and D&T missed something material.

If  the original 20F was due April 15th, If I remember correctly, or 3.5 months post YE under normal circumstances and we assume most or all of the YE audit process was substantially delayed or halted until the green light was given by D&T, then a lot of the YE work did not truly begin until late April or early May.  Now if we throw in a small restatement (think of the over accrual of stock option expense last year) it complicates things, particularly if it goes back to 2012,  At this point most of their other clients YE work is done so there should be capacity to throw at this as well as PwC's desire to get it done ASAP. So with the puts and takes and it should be no more than that 3.5 months to get it done from the point they actually started in earnest.

So if that's all the case, 7-8 weeks is not all that unreasonable as far as getting the 20F out given all that's happened and assuming there is some small restatement that may effect 2012.

Now that could be just rationalizing but I don't think so. I'm not happy with stock price or the delay but we're not really sure what is going on so I have tried to make sense of the facts.  If this was truly an independant investigation it is also likely that both the mgmt and auditors were kept in the dark until the investigators came to their conclusions.

So the facts are that is NQ is real business with real parnters and is not a fraud as reported by the IA.  If that statement is true, then the above best explains I believe the delay.  I don't believe it would fit with the IA "missing" something material that PwC now as to clean up and resign for.  But frustrating, I agree.

I think the stock price is as much affected by a lack of big buyers as it is by the shorts.  However, they won't return until the 20f is filed.  All IMO.

I respect your input. However the assumption of ‘PwC didn't start doing audit work until late April or early May’ is incorrect. IC completed their work in January. PwC China had completed audit work in late April. They almost made the filing deadline which was April 30. Then PwC US stepped in and started doing review till now. Note PwC US is only doing 'review', but PwC China should and was doing 'audit' work.

Also, you probably remember both Omar and NQ IR made comments in April saying 20F will be filed very soon. If PwC had not even started doing audit at that time, NQ would not have got the impression that PwC was getting close to finish.

[SamAdams]

Note being argumentative as I laid out a lot of "guesswork" but how do we know the IC was done in January?  That seems even more unbelievable that it would then take them 3 months to report to PwC and a total of almost 4 months to finalize.  I'll admit the company  thought they were close but one of my assumptions was that they weren't truly in the know -  if the IA was truly independant.  So they can criticized for jumping the gun or perhaps were hearing things from the board.  Your scenario, while it may well be true, would be more concerning as there would be no reason to hold back.  One of my assumptions, right or wrong, is that PwC would be eager to get it done and validate their prior work, now supported by IA.  if the IA was done in January then there was no reason for delay of 20F, certainly not this long.  PwC USA could be that inept or that cautious but my conversations suggested the auditors would be aggressive in reaffirming prior audit work unless there was some smoking gun.  Thans for sharing your thoughts.

[Banco_Central_de_Costa_Rica]

"Then PwC US stepped in and started doing review till now. Note PwC US is only doing 'review', but PwC China should and was doing 'audit' work."
Assuming this is correct than NQ management was aware before US PWC stepped in that this could/would happen. I am referring to the pointed letter Carson sent to the head of PWC USA. So again it appears NQ Management did nothing to prepare for what would almost certainly happen. The IC which was headed by independent board members must also know of the letter as they were charged with investigating ALL Muddy claims. You time line paints a further embarrassing picture of the people in charge at NQ. Reactive not proactive.
You might ask " What could they do?" engage the US for details on what they might do/need.

[admin]

Thanks for that explanation Sam, it helps.

[maplell2002]

Note being argumentative as I laid out a lot of "guesswork" but how do we know the IC was done in January?  That seems even more unbelievable that it would then take them 3 months to report to PwC and a total of almost 4 months to finalize.  I'll admit the company  thought they were close but one of my assumptions was that they weren't truly in the know -  if the IA was truly independant.  So they can criticized for jumping the gun or perhaps were hearing things from the board.  Your scenario, while it may well be true, would be more concerning as there would be no reason to hold back.  One of my assumptions, right or wrong, is that PwC would be eager to get it done and validate their prior work, now supported by IA.  if the IA was done in January then there was no reason for delay of 20F, certainly not this long.  PwC USA could be that inept or that cautious but my conversations suggested the auditors would be aggressive in reaffirming prior audit work unless there was some smoking gun.  Thans for sharing your thoughts.

You are right about the 'guesswork' and that's why I try to share what I know - Hopefully it can be a little help to others. As you know NQ originally announced their plan to release both IC report and 20F the same time. That’s why when IC completed early they did not release it right away, they waited for PwC to complete their work. In April, NQ IR mentioned that PwC and IC went back and forth. That was the time when PwC just wrapped up their own audit and PwC US got involved. PwC started to review IC report thoroughly and did not allow it to be released until they were satisfied in June.

[maplell2002]

"Then PwC US stepped in and started doing review till now. Note PwC US is only doing 'review', but PwC China should and was doing 'audit' work." Assuming this is correct than NQ management was aware before US PWC stepped in that this could/would happen. I am referring to the pointed letter Carson sent to the head of PWC USA. So again it appears NQ Management did nothing to prepare for what would almost certainly happen. The IC which was headed by independent board members must also know of the letter as they were charged with investigating ALL Muddy claims. You time line paints a further embarrassing picture of the people in charge at NQ. Reactive not proactive. You might ask " What could they do?" engage the US for details on what they might do/need.

NQ only interact with PwC China because that is their auditor. Since PwC China told them they were able to file by deadline why would they think otherwise. If PwC China didn't know ahead of time, how would NQ know PwC US would step in and change the plan at last minute?

[gaosl11]

Note being argumentative as I laid out a lot of "guesswork" but how do we know the IC was done in January?  That seems even more unbelievable that it would then take them 3 months to report to PwC and a total of almost 4 months to finalize.  I'll admit the company  thought they were close but one of my assumptions was that they weren't truly in the know -  if the IA was truly independant.  So they can criticized for jumping the gun or perhaps were hearing things from the board.  Your scenario, while it may well be true, would be more concerning as there would be no reason to hold back.  One of my assumptions, right or wrong, is that PwC would be eager to get it done and validate their prior work, now supported by IA.  if the IA was done in January then there was no reason for delay of 20F, certainly not this long.  PwC USA could be that inept or that cautious but my conversations suggested the auditors would be aggressive in reaffirming prior audit work unless there was some smoking gun.  Thans for sharing your thoughts.

You are right about the 'guesswork' and that's why I try to share what I know - Hopefully it can be a little help to others. As you know NQ originally announced their plan to release both IC report and 20F the same time. That’s why when IC completed early they did not release it right away, they waited for PwC to complete their work. In April, NQ IR mentioned that PwC and IC went back and forth. That was the time when PwC just wrapped up their own audit and PwC US got involved. PwC started to review IC report thoroughly and did not allow it to be released until they were satisfied in June.

thanks for sharing. i think it makes sense for what is happening now. still i don't get why PWC can influence an 'independent' report. I saw a lot people metioned (mainly in shorter's artical) that those 2 auditors are both independent and should  not be impacted by other's opinion.

[maplell2002]

You are right about the 'guesswork' and that's why I try to share what I know - Hopefully it can be a little help to others. As you know NQ originally announced their plan to release both IC report and 20F the same time. That’s why when IC completed early they did not release it right away, they waited for PwC to complete their work. In April, NQ IR mentioned that PwC and IC went back and forth. That was the time when PwC just wrapped up their own audit and PwC US got involved. PwC started to review IC report thoroughly and did not allow it to be released until they were satisfied in June.

thanks for sharing. i think it makes sense for what is happening now. still i don't get why PWC can influence an 'independent' report. I saw a lot people metioned (mainly in shorter's artical) that those 2 auditors are both independent and should  not be impacted by other's opinion.

I had the same question. The only persuasive explanation would be PwC wanted to avoid major discrepancies between the two reports. But still it took a long time for PwC to give green light to IC (from late April to June 4).

[gaosl11]

"Then PwC US stepped in and started doing review till now. Note PwC US is only doing 'review', but PwC China should and was doing 'audit' work." Assuming this is correct than NQ management was aware before US PWC stepped in that this could/would happen. I am referring to the pointed letter Carson sent to the head of PWC USA. So again it appears NQ Management did nothing to prepare for what would almost certainly happen. The IC which was headed by independent board members must also know of the letter as they were charged with investigating ALL Muddy claims. You time line paints a further embarrassing picture of the people in charge at NQ. Reactive not proactive. You might ask " What could they do?" engage the US for details on what they might do/need.

NQ only interact with PwC China because that is their auditor. Since PwC China told them they were able to file by deadline why would they think otherwise. If PwC China didn't know ahead of time, how would NQ know PwC US would step in and change the plan at last minute?

interesting. that actually explained what said by Omar in the Q4 earning call

"But when you release Q4, technically, they are unaudited financials and the audited comes out in association with the 20F and going back to the answer, based on the current schedule, the fully integrated schedule that all the parties that are associated with the process are working form, we are planning on -- we are currently planning on meeting the statutory deadline to the 20F which is April 30th."

he implied all parties has agreed on schedule which is Apr 30th, but he added 'currently' before planning by restating it. I think he knows PWC US is involved at that time and has a bit hesitant but don't expect PWC US will make such big trouble to him. until his very recent email to employee:

"The one thing that I was honestly not acutely prepared for, were the malicious short-seller attacks on and fabrications about our company, our partners and our people. I underestimated the lengths that they would go to further their agenda of profiting by doing harm to our company, employees, partners and our shareholders."