An article in today’s Vancouver Sun makes some interesting points about auditing firms and their OTC company clients. OTC companies aren’t very good investments for shareholders, as many have shaky businesses or are really shell companies for other planned business ventures.
Yet for auditing firms, they might seem like good clients. They need audits before they can register to be sold on the OTC Bulletin Board or pink sheets, and they’re willing to pay.
But OTC companies have become such a problem that the B.C. Securities commission is warning accountants and lawyers that if they knowingly aid and abet fraud schemes they could be in trouble.
One audit firm with lots of OTC clients is Manning Elliot. Case in point with the OTC problem is Heavy Metal Inc. Mannin Elliot audited it and gave the company permission to use the audit report when registering to become an OTC issuer. Heavy Metal is supposedly in the “exploration” business, but it is run out of the home of one David Harapiak, who has no experience in exploring and is the company’s only officer or director. The company acquired on property in July, but hasn’t done any work on it and hasn’t even had a geologist give it the thumbs-up, so it has zero value on the balance sheet.
Clearly, Heavy Metal is a questionable business and doesn’t appear to have any value. So what’s it’s real business? Or is it a shell for a planned business?
Manning Elliot has several such clients. Companies with weak financial positions, questionable business plans, owners and executives with little relevant experience.
So what is the value of these audits? Manning Elliot gives a clean audit opinion says it’s okay to use the opinion in the registration process. But outside evidence suggests that these companies are questionable at best, and a total scam at worst. Is it time to reevaluate the purpose of audits and their real value to the marketplace? Yes.