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Finance Errors to Cost Alibaba Pictures More Than $47 Million

Alibaba Pictures Group, the film making unit of China’s e-commerce giant, will have to restate its net asset value and take losses of at least US$47 million (HK$364 million) after an assessment of the company’s financial mismanagement.

The company announced the findings of an auditor that it called in after finding irregularities that related to a period before its acquisition by Alibaba. The Hong Kong-listed company was at the time known as Chinavision.

The auditor found that Chinavision had failed to use correct invoices and had therefore mis-calculated its Enterprise Tax in mainland China. It had often applied incorrect value added tax rates in China, and it has applied the wrong valuation of certain corporate bonds. That in turn meant that the stated value of certain warrants were incorrect.

The group’s net asset value would have to be reduced by HK$70 million (US$9.03 million) in the year to end of 2012, by HK$58 million (US$7.48 million) in the year to end of 2013 and between HK$257 million and HK$323 million (US$33.2 million to US$41.7 million) in the as yet unreported six month period to June 2014.

Net profits will have to be restated; by a reduction of HK$61 million (US$7.87 million) in the year to end of 2012; by an increase of HK$21 million (US$2.71 million) in 2013; and by a reduction of between HK$324 million and HK$390 million (US$41.8 million to US$50.3 million) in the six months to June 2014.

Alibaba Pictures said that it will report the results as soon as possible and apply for trading in its shares to start after that. It made no mention of criminal or civil action against the previous management of the company or its financial advisers.

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