Grant Thornton has resigned as the auditor of Yuhe International, a Chinese poultry company, after questioning loans made to a company affiliated with Yuhes chairman and CEO.
The firm resigned as auditor on March 5, the company said on Friday, and it has appointed another auditing firm, Child, Van Wagoner & Bradshaw, effective March 9.
Yuhe, founded in 1996, is the second largest day-old broiler breeder in China. The companys headquarters are in Weifang, Shandong province.
In an SEC filing, the company noted that Grant Thornton had been appointed just last December to audit its fiscal year-end statements. Prior to March 5, Grant Thornton had not previously audited Yuhe or its subsidiaries.
In the 10K/A filed by Yuhe last June, the company concluded that certain related-party loans made to Shangdong Yuhe Food group constituted prohibited transactions under Section 402 of the Sarbanes-Oxley Act.
All the related-party loans had been repaid as of the end of 2009, Yuhe noted in the filing, but because Yuhe International continued to make payments under certain arrangements to Yuhe Food, the payments resulted in related-party loans in January and February 2010.
Grant Thornton noted during its audit procedures that Yuhe had been unable to eliminate the occurrence of the related-party loans with Yuhe Food, and Yuhe concluded that a material weakness continued to exist with respect to the companys compliance with Sarbanes-Oxley. Once Yuhe was informed that the payments constituted impermissible related-party transactions, it caused the loans to be repaid promptly. Yuhes audit committee is studying ways to improve the companys internal controls and eliminate the improper payment arrangement.
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