November 29, 2010 / 1:58 PM / 7 years ago

UPDATE 1-Orient Paper probe finds co did not overstate revenue

* Says reported revenue consistent with records

* Finds no evidence to show funds were misappropriated

* Recommends appraisals of co’s prodn lines, inventory

* Backs review of pricing of some raw material purchases

Nov 29 (Reuters) - Chinese paper company Orient Paper (ONP.A), which was accused by a Hong Kong-based brokerage of accounting impropriety, said an internal probe found no evidence of misappropriation of funds or overstated revenue.

The audit committee started its investigation in July, after Muddy Waters LLC started coverage of the company with a “strong sell” rating, and accused it of overstating revenue and margins.

On Monday, the committee said it found the reported revenue was consistent with bank records and the company’s books and records, cash receipts, and sales invoices.

“From October 2009, the audit committee has not found, through a review that included company books and records and bank records, any evidence to support the allegation of misappropriation of $30 million,” it said.

    The probe recommended appraisals of all of Orient Paper’s operational production lines as well as inventory, and retaining an expert to review pricing of some raw material purchases. [ID:nWNAB5455]

    Earlier this month, Muddy Waters had taken on another Chinese firm, Rino International RINO.O, accusing it of fabricating customer relationships. Rino’s auditors did find accounting irregularities. [ID:nSGE6AI0GF]

    Shares of both companies lost over half their value since the charges were made by Muddy Waters, which had a short position in both stocks.

    Orient Paper’s shares, however, rebounded 30 percent in two days after the company said it was “pleased” with the probe results on Wednesday. [ID:nSGE6AN0GN]

    Orient Paper shares closed at $7.10 on Friday. Rino stock has been halted for nearly two weeks now. (Reporting by Adveith Nair in Bangalore; Editing by Prem Udayabhanu)

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