Tahud, Julie Ann P.

1. Comment on Boshiwa’s board composition, giving consideration to relevant

corporate governance codes and rules. Does Boshiwa’s board composition
correspond to your idea of an “ideal” board composition? If not, how can its
board composition be improved on?

 Having members doing double duty may compromise the important wall between
the members of committee, which helps avoid any conflicts of interest. Members
serving on several other boards may not devote adequate time to their
responsibilities. My ideal board composition is composed of people who can take
their duties and responsibilities effectively. Boshiwa’s board composition does
not correspond to my idea of an ideal board composition. Boshiwa can improved
their board composition by ensuring that in their respective position, they can
balance their time to their responsibilities. Like Zhong Zheng Yong who serves
several position in the company, there is a possibility that he cannot perform well
his duties.

2. Consider Boshiwa’s shareholding structure, relationship between Boshiwa

and its shareholding companies as well as your earlier comments on
Boshiwa’s board composition. What complications might possibly arise from
such a corporate structure?

 Boshiwa acquired many levels of ownership. There were substantial changes,

including the transfer of equity interests among different related parties as well as
major acquisitions and founding of new companies. The board members are
having a lot of duties which results to resignation of auditor because of issues
regarding financial statements. Boshiwa also announced a delay in release of its
FY2011 earnings owing to the need for a new auditor and the formation of a
special investigation committee to look at issues.

3. What is the role of external auditors in the corporate governance of

companies? What are the red flags raised by auditor resignations? Did the
auditors act appropriately in the Boshiwa’s case?

 External auditors report the state of a company's finance and attest to the validity
of financial reports that may have been released. They ensure that the board
receives accurate and reliable information. The published portion of Deloitte’s
resignation letter revealed concerns about matters pervasive to the financial
statements. Deloitte also claimed to be unable to complete the audit as certain
information requested was outstanding and explanations provided by Boshiwa
were unsatisfactory. It’s another example of questionable corporate governance
because we don’t know exactly why their auditor resigned. Auditors are more
conscious of the dangers of being sued and the reasons for the resignations are
associated with protecting their own reputation.
4. What is the role of the board, management and external auditors with respect
to internal controls over financial reporting and the preparation of financial
statements?
 The board and management is responsible for establishing and maintaining an
adequate system of internal control over financial reporting. An External Auditor
reviews the financial information of a company and reports on findings. The
External Auditor is responsible for investigating financial statements for errors
and fraud, performing audits on operations, and reporting on findings, and
providing recommendations.

5. Comment on the regulator’s actions with regards to the Boshiwa’s accounting

scandal. Was it appropriate?

 The regulators investigation reports that the counterparties was unable to present
and provide documents or details that can help them in solving the issues. It was
inappropriate, because there was a failure on preserving and keeping their
documents and unable to present details and documents during the
investigations.

6. What concerns do investors and regulators face with regard to foreign

listings?

 There are rules in the country of origin and rules in the destination country,
including accounting, internal control, auditing, and governance. That might
increase the company’s costs. There are more stockholders not only came from
domestic but also abroad. That, of course, increases the chance of a conflict of
interest between them. Management must address more interests, making
decision making more difficult.

7. Comment on the trend of overseas-listed Chinese firms such as Boshiwa

tending to under-perform after their IPO. Discuss the possible factors that
may have contributed to such a trend.

 Some companies have lowered forecasts, saying they expected significant or

substantial declines in revenue. This would be a worrying trend as China was
poised to become one of the world’s key and largest economies in the coming
years. Alarmingly, Boshiwa’s case seemed to be indicative of a trend in which
profit warnings, auditor disputes and de-listings involving Chinese companies
trading on foreign exchanges not only led to investor distrust, but also wiped out
valuations and poisoned the market for new listings.