Solar: Trina Dumps Deloitte, LDK Shares Tank 光伏行业：天合光能解除与德勤审计关系赛维LDK股价大跌

By newsdoug on June 27, 2012

New developments from Trina Solar (NYSE: TSL) and LDK Solar (NYSE: LDK) reflect the financial turmoil gripping the struggling solar sector, boding poorly not only for these 2 major players but also for the China arm of Deloitte, the controversial auditor that has just been dumped by Trina. The developments are all part of a bigger picture that has seen the solar sector gripped by its worst-ever downturn for more than a year now, sending all manufacturers into the red and possibly pressuring some to resort to creative accounting to mask the gravity of their situations.

Let’s look at LDK first, as that’s the more straightforward of the 2 latest developments. The company, one of the weakest of China’s major solar panel makers, has just released first-quarter results that show a $185.2 million loss that was well below market expectations. (company announcement) Equally troubling is the fact that LDK released the report just before a final deadline, after which it would have been in violation of US stock market rules and faced potential de-listing.

Neither the report itself nor the last-minute release of the data were very reassuring to investors, who bid down the stock by 6 percent after the results came out. Equally troublesome, the stock also dipped back below the $2 mark after entering that territory for the first time in May, ending at $1.90 per share. If it crosses below the critical $1 mark, which looks likely in the next month or 2, LDK could stand the very real chance of de-listing which would make its already weak stock even more unattractive.

Moving on to Trina, the company announced it has officially switched its auditor to KPMG, which is taking over from its previous auditor Deloitte. (company announcement) Trina is trying to portray the switch as a routine matter, but the reality may be a bit more complex.

Industry watchers will recall that one of Trina’s directors, who was also chairman of its audit committee, resigned last year for unspecified reasons, implying he may have disagreed with some of Trina’s accounting practices. (previous post)

Deloitte’s China arm, which was Trina’s accountant at the time, has also been the subject of controversy for its role as auditor at several firms that were later discovered to have accounting problems. Deloitte is currently caught in a fight with the US securities regulator, which is fighting for access to the accounting records of one firm that had to de-list, financial services firm Longtop Financial. (previous post) Deloitte is also auditor for another company, security software maker Qihoo 360 (NYSE: QIHU), whose accounting has also been called into question. (previous post)

I suspect that Trina may have quietly dealt with any problematic accounting issues on its books over the last few months, which now also includes the formal dismissal of Deloitte. If that’s the case, it could still face potential risk if the securities regulator or an astute short seller discovers the problems and starts to ask questions. Meantime, the dumping of Deloitte could be the first of many similar divorces by US-listed Chinese companies looking to separate themselves from this controversial auditor.

Bottom line: The latest moves by LDK and Trina hint at potential accounting issues underlying the highly troubled solar panel sector.

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