* Milk formula producer Daqing Dairy's shares suspended
* 2nd Chinese firm in recent days to see accountant quit
* Daqing shares fall 17 pct this week prior to suspension
* More auditor resignations could be ahead: analysts
(Adds Deloitte confirmation, quotes, background)
By Donny Kwok
HONG KONG, March 22 Deloitte said on Thursday it
had quit as auditor for Chinese milk formula products maker
Daqing Dairy Holdings Ltd hours after its shares were
suspended, the accounting firm's second resignation from a Hong
Kong-listed Chinese company in days.
The news has sparked fears this could be the start of a much
wider and deep-rooted problem at Chinese companies listed in
Hong Kong, after a series of scandals at U.S.-listed mainland
companies last year that has unnerved some of the big auditors.
"We see a trend there, and it may spread ahead of the
earnings seasons as auditors are taking quite a cautious
approach on reviewing those earnings, in particular under
pressure from relevant regulators," said Linus Yip, chief
strategist at First Shanghai Securities.
"It alarms the market ... and alerts investors to the
potential risk of investing in these small companies," he said.
Shares of Daqing, which produces milk formula products and
whole milk powder products, plunged 45 percent in 2011 but had
staged a partial recovery this year. The stock fell 17 percent
in the three days trading prior to its suspension.
Officials at Heilonjiang-based Daqing, which has a market
value of about HK$1.7 billion ($218.95 million), were not
immediately available for comment.
DELOITTE IN SPOTLIGHT
The Daqing resignation came a week after Deloitte quit as
auditor of Boshiwa International Holdings, which holds
the licence to make Harry Potter- and Bob the Builder-branded
clothes, attracting unwanted attention to one of the Big Four
"That's two in a row now for Deloitte. If that trend
continues it will start to raise some eyebrows," said Paul
Gillis, visiting professor of accounting at Peking University
and author of the China Accounting Blog.
Deloitte said it was not satisfied with Boshiwa's response
to questions about some of its transactions, knocking the
company's share price down as much as 42 percent before trading
"We may see more similar cases surface, especially as it was
a tough year last year for many smaller companies," said Alex
Wong, a director at Hong Kong's Ample Finance Group.
"These incidents suggest that authorities should pay more
attention to the quality of listing candidates, and that has
already hit investors' appetite for IPOs," he added.
A run of accounting scandals at U.S.-listed Chinese
companies last year has highlighted the risk of financial
irregularities, and led to some auditors facing class-action
lawsuits from angry investors.
Deloitte was caught up in one of the most high-profile
accounting scandals of last year when it resigned as auditor of
U.S.-listed Longtop Financial Technologies Ltd, alleging the
Chinese software maker had tried to falsify its financial
statements and bank confirmations.
The U.S. Securities and Exchange Commission is investigating
the case but has been thwarted by the refusal of Deloitte's
Shanghai office to hand over its audit work papers.
The SEC has gone to the courts to try to force Deloitte's
hand, but the auditor says it cannot comply as to do so could
breach China's state secrecy rules.
In other high-profile cases in the past year, China
Forestry's shares were suspended in January 2011 after
its auditors, KPMG, said they had found irregularities in its
In September, Anonymous Analytics, which said it was linked
to hacking group Anonymous, published a report accusing Chaoda
Modern Agricultural Ltd of misleading investors about
its cash holdings, capital expenditure, and falsifying its
financial statements. Chaoda's shares have been suspended.
($1 = 7.7645 Hong Kong dollars)
(Reporting by Donny Kwok; Editing by Anne Marie Roantree and