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This educational report analyzes the nature of accounting errors reported by US listed Chinese companies that resulted in material restatements to previously reported EPS or operating cash flows. Most of the restatements in our analysis had a material negative impact on these performance metrics. The most common errors are related to debt/equity instruments (mostly derivatives used in financing arrangements) and related party transactions. We raise concern that disclosure regarding restatements, especially reclassification of cash flows, is inconsistent among these companies and often not transparent.
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As 2011 10-K’s are filed, investors should look to new required disclosures related to multiemployer pension plans.