On March 16, 2013, China Education Alliance received a letter from the Securities and Exchange Commission dated March 15, 2013 informing the Company that the Chief Accountant of the Commission had received a PCAOB Form 3 report issued by the Company's former independent accountant, Sherb & Co., LLP ("Sherb") stating that it had notified the Company on February 14, 2013 that Sherb was not in technical compliance with the concurring partner rotation rules of Auditing Standard No. 7 ("Sherb Letter") and consequently, Sherb's audit report dated April 12, 2011 on the financial statements for the years ended December 31, 2010 and 2009 could not be relied upon.
China Education Alliance never received the Sherb Letter or any notification from Sherb - at any time during or after Sherb's engagement as the Company's independent accountant - of Sherb's non-compliance.
However, upon written request, the Company obtained a copy of the Sherb Letter dated January 31, 2013 on March 20, 2013. The Sherb Letter stated that Sherb was not in technical compliance with the concurring partner rotation rules of the PCAOB on certain prior audit and review engagements that they performed. The engagements affected were the audit for the year ended December 31, 2010 and the reviews for the interim periods ended March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2011, June 30, 2011 and September 30, 2011. As a result of the foregoing, Sherb stated that the Company may no longer place reliance on their audit report and review for such periods.
China Education Alliance's Board of Directors and management continue to believe that the affected audit and reviewed reports fairly present, in all material aspects, the Company's financial condition and results of operations as of the end of and for the periods presented.
The audit for the year ended December 31, 2011 was performed by Baker Tilly Hong Kong, a member of the Baker Tilly International accountancy and business advisory network
Well , i will wait for Sherb's letter in response.
(c) We have provided Sherb with a copy of this Form 8-K representing our response to Item 4.02(b) of Form 8-K on the same day as the filing of this Report on Form 8-K with the Securities and Exchange Commission (the "SEC"). We have requested that Sherb furnish us with a letter addressed to the SEC stating whether Sherb agrees with the statements made by us in response to Item 4.02(b) and, if not, stating the respects in which it does not agree. We will amend this Form 8-K by filing Sherb's letter as an exhibit to the filed Form 8-K no later than two business days after we are in receipt of the letter from Sherb as described in this paragraph.
This should not surprise any of us as Sherb is a weak low level firm. Baker Tilly was strong and now Albert Wong is weak. They really needed to keep Baker Tilly in play for credibility reasons. They need Baker Tilly more than ever now but they already made the wrong choice to go with Albert Wong. I bet they did to save money which is not always the right move. They may have also done so as firms like Albert Wong will not audit as closely or accurately sometimes. This Sherb thing is the last thing CEAI needs along with all of their other problems. I am completly long but everyone should know the facts. JDT JDT
The rest of the article:
The Company will take whatever action necessary on behalf of its shareholders to rectify Sherb's non-compliance and default.
Any accounting geeks/CPA here to explain what has taken place and what the company has to do to rectify the noncompliance and default?
It seems to me that they have to re-audit again - "The engagements affected were the audit for the year ended December 31, 2010 and the reviews for the interim periods ended March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2011, June 30, 2011 and September 30, 2011. As a result of the foregoing, Sherb stated that the Company may no longer place reliance on their audit report and review for such periods."
the length of any auditing firm is a 5 year period Sherb exceeded that length with CEAI at the time ,its their technical fault i assume and its a geek fault ,but nonetheless CEAI should have been more aware of this technical formality,man this is what i hate the most about them at that time ,stupid technical faults ,the management should be more aggressive with its financial officers.
Part 1 of 2 - Auditing Standard No. 7
"The language of AS 7 explicitly directs the engagement quality reviewer to evaluate risks to the firm and the company, evaluate the severity of deficiencies in control, and determine if there have been "appropriate" consultations on difficult matters. A final requirement calls upon the reviewer to, "Based on the procedures required by this standard, evaluate whether appropriate matters have been communicated, or identified for communication, to the audit committee, management, and other parties, such as regulatory bodies."
The nine procedures outlined in AS 7 say that the reviewer should:
a. Evaluate engagement planning, including
- The consideration of the firm's recent engagement experience with the company and risks identified in connection with the firm's client acceptance and retention process,
- The consideration of the company's business, recent significant activities, and related financial reporting issues and risks, and
- The judgments made about materiality and the effect of those judgments on the engagement strategy.
b. Evaluate the risk assessments and audit responses, including the identification of significant risks, including fraud risks, and the engagement procedures performed in response to significant risks.
c. Review the engagement team's evaluation of the firm's independence in relation to the engagement.
d. Evaluate judgments made about (1) the materiality and disposition of corrected and uncorrected identified misstatements and (2) the severity and disposition of identified control deficiencies.
e. Determine if appropriate matters have been communicated, or identified for communication to the audit committee, management, and other parties, such as regulatory bodies.
f. Review the financial statements, management's report on internal control, and the related engagement report.