Orient Paper's use of Davis Accounting highlights one of the criticisms Chinese small-cap companies in general have faced in recent months: that, in many cases, companies hailing from the People's Republic have preferred to hire small, obscure audit firms in the U.S. to sign off on their numbers.

Auditing has been a key issue in the life of Orient Paper so far. Last year, after fraud allegations lodged by several short sellers roiled Orient Paper and its stock price, the company underwent a self-commissioned investigation aided by consultants at the Big Four firm Deloitte.

The result of the investigation appeared to clear Orient Paper.

Investigating Chinese Reverse Mergers

Spencer Bachus, the chairman of the House Financial Services Committee, sent a letter to the Securities and Exchange Commission last summer, asking the agency to heighten its scrutiny of the auditors used by Chinese small-cap companies. The SEC, in turn, has formed a task force to investigate allegations of fraud targeted at this group of companies, especially those that came public in the U.S. through reverse mergers.

-- Written by Scott Eden in New York

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