Thursday, September 08, 2011

Corporate Fraud in China? Fitch Says Look for More Allegations.

Credit-rater Fitch Ratings says that it expects additional complaints of accounting fraud to be leveled at Chinese-based businesses; though it also mentioned that some such allegations will be found to be without substance. Additonally, Moody's has listed "red flags" on some Chinese companies. A number of Chinese companies which are listed on US-based stock exchnages were recently hit with fraud allegations. Several Chinese firms have already been suspended or withdrawn from US stock exchanges and Moody's. Fitch seems to believe that many of the allegations will prove partially true and partially false and recommends that Chinese standard-setters and financial executives take a cue from Latin America in regard to improved corporate governance.

Financial fraud is one of the most devastating blows to an effective stock market that exists. Given the woeful returns on many US-based investments; investing in global markets has become increasingly popular; just make sure before you invest to test whether supporting documents, such as financial statements, are reasonably trustworthy.

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