That was a lie. The managers of the company had transferred all the assets to themselves in 2009, and reported the transaction to the Chinese government. But the auditor, Moore Stephens, a Hong Kong firm, failed to notice that public filing and certified the company’s financial statements for both 2009 and 2010.
This week, a federal judge in New York dismissed a shareholder class-action lawsuit against the audit firm, saying that the plaintiffs had failed to present sufficient evidence to show that Moore Stephens had acted recklessly and failed to follow auditing procedures required by the United States Public Company Accounting Oversight Board.
The issue, Judge Katherine B. Forrest of Federal District Court in Manhattan stated in an opinion filed on Tuesday, was not whether the auditor could have done a better job, but whether ”a reasonable auditor would have” checked the records that showed a fraud had been committed.