China-based Fushi Copperweld (FSIN) is trading down about 3% today on light volume. The reason for the decline is that the company reported that impact of previously misstated accounting items. The existence of these items was disclosed on March 24, when the company reported the 4Q10 quarterly and annual results.

One correction arises from the accounting treatment of a cross currency swap that the company purchased from Merrill Lynch Capital Services. This is the summary of the impact: The effect of correcting this error, after taking into consideration the income tax effect, would be a decrease in net income of USD 2.1 million, an increase in net income of USD 2.7 million, a decrease in net income of USD 5.6 million and a decrease in net income of USD 5.0 million for the years ended December 31, 2009, 2008 and 2007, and for the quarter ended March 31, 2010, respectively.

The second correction has to do with the accounting for the two acquisitions the company did during the first quarter of 2010. This is the impact: The effect of correcting this error, after taking into consideration the income tax effect would be a decrease of net income of USD 3.3 million and USD 1.1 million for the quarters ended March 31, 2010 and June 30, 2010, respectively.

Both of the re-statements are non-cash and pre-announced, so it was not a surprised to the investment community.

On March 24, 2011, the company announced 4Q10 and annual 2010 results: quarterly revenue grew 35.2% to $69.9 million and operating income grew 27.3% to about $15.8 million from the same quarter of the last year. For the year, the company’s revenue grew 44.9% to $265 million and operating income grew 56.4% to $57.7 million from the 2009.

The re-statement does not sound that a big deal to the company’s overall operation and size.

Chinese companies are prune to be frauds, but this company appears to be earnest in cleaning up its accounting book. The very reason that these re-statement came about is that later last year, the company replaced its independent auditor and new auditor, KPMG discovered the accounting discrepancies and advised the company to issue the re-statements.

The stock price drop of FSIN presents an interesting opportunity for investors. On November 3, 2010, the company announced a go-private proposal from the company’s Chairman and CEO, Lr. Li Fu and Abax Global Capital (HongKong). The offer is $11.50 per share.

And the stock is trading at around $8.00 per share at the time of this writing.

Disclosure: No position

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