Business Context and Reporting Period
This Form 8-K is a current report filed by China BAK Battery, Inc. (CBAK Energy Technology, Inc.) on March 28, 2007. The filing discloses a change in the company's principal certifying accountants effective April 1, 2007.
Key Financial Metrics
The filing text does not provide specific values for revenue, profit, cash flow, margins, debt, or liquidity. The report focuses exclusively on the transition of accounting firms and historical audit findings regarding internal controls.
Material Changes
- Accountant Change: The company dismissed KPMG as its principal accountant and appointed PKF as the new principal accountant, effective April 1, 2007.
- Audit Committee Approval: The decision to change accountants was approved by the Audit Committee of the Board of Directors.
- No Disagreements: There were no disagreements with KPMG on accounting principles, practices, or auditing scope during the two most recent fiscal years or the subsequent interim period.
Outlook, Risks, and Contingencies
Internal Control Weaknesses: KPMG previously advised the company of material weaknesses in internal controls over financial reporting as of September 30, 2006. These weaknesses stemmed from an insufficient complement of personnel with adequate U.S. GAAP knowledge and a lack of supervisory review. Specific areas of weakness included:
- Accounting for capitalization of interest costs and related property, plant, and equipment.
- Accounting for deferred taxes, including identification of tax bases and applicable rates.
- Accounting for share-based compensation, specifically regarding option grant cancellations and expense classification.
- Calculation of earnings per share (EPS) under SFAS No. 128, particularly the identification of dilutive instruments.
Audit Opinion Status: KPMG's audit reports for fiscal years 2005 and 2006 did not contain adverse opinions or disclaimers, though they noted the adoption of SFAS No. 123(R) for share-based payments. However, the report on internal controls indicated that effective controls were not maintained due to the material weaknesses listed above.
Future Action: The company has requested a letter from KPMG regarding the above comments and will file it with the SEC via an amendment to this Form 8-K once received.
Investor Verification Checklist
- Verify the reasons for dismissing KPMG and the qualifications of the new firm, PKF.
- Review the upcoming amendment to this filing for KPMG's official letter regarding the change.
- Assess the company's remediation plan for the material weaknesses in internal controls identified in the 2006 Form 10-K.
- Confirm whether the lack of U.S. GAAP expertise in senior management has been addressed with new hires or training.