Hongxing Erke Audit Report Exposure Campaign Huge Financial Errors

Hung Xing Sports Shoes and clothing Sports finance has huge errors? Yes, recently, a company called "nTan" issued the above independent audit report. The independent audit report showed that in the 2010 fiscal year, the cash and bank deposits under Hongxing sports financial statements were 1 billion 417 million yuan, but the audit found only 263 million yuan in real terms, with a cash increase and a bank account of 1 billion 154 million yuan.

The report pointed out that Hongxing campaign in fiscal year 2010, in order to avoid dealers in Beijing, Shanghai and Tianjin to close stores and stimulate more new stores, Hongxing sports paid 335 million yuan to dealers. In addition, Hongxing campaign paid 467 million yuan of interest free short-term loans to distributors in six provinces such as Anhui and Fujian. Hongxing sports also increased 212 million yuan in inventory and other expenses increased by 140 million yuan. After excluding these expenses, the cash and bank deposits in Hongxing sports in 2010 fiscal year were actually only 263 million yuan.

The independent audit report also pointed out that Hongxing sports had many irregularities in the financial field. One of the cases is that in the 2010 fiscal year and the 2011 fiscal year, the total expenditure of some important subsidiaries of Hongxing sports reached 2011 yuan in the activities of expanding the market, far exceeding the upper limit of no more than 750 million yuan that the board of directors of the company made. Some of the subsidiary companies of Hongxing sports offered interest free loans to dealers, and as early as 2009, Hongxing sports board had banned such activities.

The audit report of "nTan" shows that the financial officer of Hongxing sports explained in the survey that the financial statements of the company are based on the relevant data submitted by the subsidiary companies, and the data submitted by the default subsidiary are true and accurate.

Insiders say that the huge discrepancy in the financial data of Hongxing sports has something to do with the management confusion of its subsidiaries. In order to expand its market share, Hongxing sports has set up branches in many regions and has built a direct store which belongs to Hongxing sports. However, the pace of self run is too fast, causing great pressure on the cash flow of the company. Besides, the turnover of goods in the direct stores is slow and the amount of stock has increased. The rapid expansion of Direct stores has also suppressed the enthusiasm of franchisees.

According to the "nTan" report, in the 2010 fiscal year, Hongxing sports stock amounted to 469 million yuan, accounts receivable amounted to 893 million yuan, and other receivables amounted to 475 million yuan; in the 2009 fiscal year, the number of Hongxing sports stock, accounts receivable and other accounts receivable were 166 million yuan, 363 million yuan and 115 million yuan respectively, and the number of 2010 fiscal year was more than doubled in the 2009 fiscal year.

To digest inventory and provide credit support to dealers, the cost of Hongxing sports has increased dramatically. In the 2010 fiscal year, Hongxing sports cost of operation reached 2 billion 243 million yuan, resulting in a net loss of 1 billion 635 million yuan in Hongxing sports in that year. In the 2009 fiscal year and the 2008 fiscal year, Hongxing sports net profit was 131 million yuan and 449 million yuan respectively.

Since the end of February 2011, due to the problem of financial data, Hongxing sports stock has stopped trading. Up to now, the Secretary of Hongxing sports board resigned. "NTan" has been invited to audit the Hongxing campaign for more than a year, and the 2011 financial report has not been released. The independent audit report reveals many loopholes in the internal control of Hongxing sports, and what kind of treatment the Singapore Stock Exchange will make has not yet been clearly stated.

The industry believes that despite the poor performance of Hongxing sports in recent years, there are still quite a lot of innovations in marketing. The setbacks that had happened before were mainly too much expansion in sales channels and confusion in management. If there is a good combination of product development and marketing in the future, there is still hope.

Before the announcement, the company's growth was strong, and the order amount in the first three quarters of this year was 3 billion 709 million yuan. Despite the challenges and growing pressures of the domestic sporting goods market, the company will still look for opportunities to expand its coverage of the Chinese market and expand the influence of "Erke" brand through strategic sponsorship activities and marketing, but the Hongxing movement also said: "in the current economic situation, we will prudently implement the business expansion plan." {page_break}

"Independent investigation report" failed to explain why China Hongxing "missing" more than 2 billion yuan.

The "independent investigation report" of China sports brand merchants Hongxing sports 2010 earnings report failed to explain why the balance of cash and bank balances at the end of the year would be "missing" 1 billion 154 million yuan, which is responsible for carrying out this one year and a half independent nTan business consulting company and even questioning the governance and control measures implemented by China Hongxing, which is not likely to be effective in preventing abuse of power, because power is highly concentrated on the CEO.

In the independent investigation report, nTan enterprise consultant also pointed out that the scope of the independent investigation can not constitute internal audit, and should not be used as the main basis for assessing whether the internal control system is adequate.

China Hongxing appointed Prof Cooper to conduct an independent review of its financial position in February. Up to now, Prof Cooper has not released its review report and has failed to help nTan's "independent investigation report". Based on these limitations, nTan put forward its findings.

Shares of China Hongxing have been suspended for nearly a year and a half. NTan business consultant has submitted its independent investigation report to China Hongxing's 2010 earnings report on the 20 day of July to the board of audit of China Hongxing board and the Singapore Exchange. China Hongxing released a summary of the "independent investigation report" the night before yesterday, reiterated yesterday that it will strengthen corporate governance so that the stock can get the new exchange's approval to resume trading.

China Hongxing began its suspension in February 28th last year. It announced in February 25, 2011 that the external auditor, Ernst & young, pointed out that China Hongxing had 2010 financial problems. In the accounts of two Chinese subsidiaries of China Hongxing sports, Ernst & amp; young found that cash and bank balance balances, accounts receivable, accounts payable and other expense accounts were "not in line with the usual practice". In March 1st last year, China Hongxing appointed nTan business consultants to conduct an independent investigation for the "special auditor".

The main subsidiaries of China Hongxing are Fujian Hongxing Erke sporting goods and Quanzhou Hongrong light industry.