UPDATE 2-Rino Int'l auditors find accounting flaws
* Auditors letter says co didn't sign 2 of 6 contracts
* Co says results from March '08 shouldn't be relied upon
* Trading in Rino shares halted since Wednesday (Recasts, adds details, updates shares)
By Adveith Nair
BANGALORE, Nov 19 (Reuters) - Chinese clean-technology firm Rino International Corp RINO.O said its auditors had found problems with its accounting and it authorized the hiring of an external law firm to conduct an independent investigation.
Rino's auditors said the company's Chief Executive Zou Dejunas had admitted that Rino did not enter two of the six contracts it reported revenue from for two years, according to a filing with U.S. securities regulators.
"Assuming that these statements were reasonably accurate, it appears that our reports would have been affected if this information had been known to us at the date of our reports," the auditors, Frazer Frost LLP, said.
They said while the effect on Rino's results was not yet known, financial statements from March 31, 2008 to Sept. 30, 2010 should not be relied upon.
Friday's news comes a week after research firm Muddy Waters LLC alleged that Rino fabricated customer relationships and overstated revenue. [ID:nSGE6AA0P2]
"Five of the nine (customers) deny having purchased FGD systems from Rino," the report said. "It is likely Rino fabricated a sixth customer relationship as well.
Rino shares, which were in freefall after the Muddy Waters report last week, took a further beating when another brokerage Canaccord Genuity said the allegations could be difficult to dismiss, and when Rino postponed its conference call on its audit committee's recommendations. [ID:nSGE6AG097]
According to Friday's filing, CEO Zou first said there might be problems with other contracts, but later said that apart from two contracts all others were legitimate.
As of August, Zou was by far Rino's single largest shareholder with 63 percent of its 28.6 million outstanding shares, Thomson Reuters data shows.
Rino, which provides clean technology products to China's iron and steel industry, has had three chief financial officers since October 2007.
RINO IN MUDDY WATERS?
Rino is the latest target for Muddy Waters, a small Hong Kong-based brokerage. It has previously taken on other small Chinese firms.
In late June, the brokerage published a damning report on Chinese firm Orient Paper Inc (ONP.A) whose shares have slumped more than 30 percent since then.
Disclosures are especially limited amongst overseas firms, and accounting irregularities have surfaced at other Chinese companies.
Chinese solar companies in particular, once prized for their growth prospects, have come under scrutiny by regulators for alleged accounting irregularities. [ID:nTOE65R04]
The companies' quarterly income statements and balance sheets are typically less detailed those from U.S. companies. Cashflow statements are only issued once a year under U.S. SEC rules for companies deemed incorporated outside the country.
Orient Paper, which like Rino, started an accounting probe following Muddy Waters' allegations, fell 9 percent Friday morning. Trading in Rino shares has been halted since Wednesday.
Shares of both companies have had a roller-coaster ride this year and are down over 60 percent from their year highs. Both touched year lows following reports from Muddy Waters, which had a short positions in Rino and Orient Paper stocks. (Reporting by Adveith Nair; Editing by Gopakumar Warrier)