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TheStreet Open House

Auditor Flees China RTO Universal Travel

Stocks in this article: UTA CCME CAGC NIV CDM CIL CELM

NEW YORK ( TheStreet) -- Universal Travel (UTA), whose shares were halted earlier this week, became the latest Chinese small-cap company to announce that its auditor resigned after the firm had raised accounting red flags.

The auditor, Windes & McClaughry, of Long Beach, Calif., ran across the alleged problems while auditing Universal Travel's 2010 financial results in preparation for filing its 10-K annual report with the Securities and Exchange Commission, the company said in a disclosure to the SEC late Thursday.

Universal Travel had already divulged at the end of March that it wouldn't be able to file its 10-K on time and that it needed to cancel its previously scheduled earnings conference call. In a press release on March 30, the company said the delay "was not due to any accounting irregularities" and that it was merely to "allow l the Company and its independent auditors to complete their work on the financial statements and audit."

Windes couldn't immediately be reached for comment. A Universal Travel spokesperson, at the investor relations firm Christensen, didn't respond to a request for comment.

The problems Windes allegedly found were described vaguely by Universal Travel in its 8-K disclosure filing Thursday. For example, Windes told the company before it resigned that it had run into "issues related to the authenticity of confirmations" as well as "lack of evidence of certain tour package contracts and related cash payments," according to Universal Travel in the 8-K.

Windes also suffered a "loss of confidence in confirmation procedures carried out under circumstances which Windes believed to be suspicious," the 8-K said.

Windes decided to quit when "it was no longer able to complete the audit process," according to the 8-K. "Windes stated this was due in part to Management and/or the Audit Committee being non-responsive, unwilling or reluctant to proceed in good faith and imposing scope limitations on Windes' audit procedures."

Universal Travel was a Windes client only since Sept. 30. The firm resigned on Sunday, April 10, the company said. The NYSE Amex halted trading in UTA stock before the opening belll on Tuesday, April 12.

In its 8-K filing, Universal Travel disputed Windes' claim that it had blocked the firm's ability to conduct the audit. "We believe that we have acted responsively, prudently and in good faith to address the numerous issues raised by Windes during the entire audit process," the company said.

Investigating Chinese Reverse Mergers

Still, despite those issues, Universal Travel said it was able to secure the services of a replacement for Windes as its independent auditor: EFP Rotenberg & Co., an accountancy based in Rochester, N.Y. The hiring is "subject to the Company clearing their client acceptance procedures," Universal Travel said.

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