1. Describe the fraud that allegedly occurred through Sino-Forest Corporation Inc.? Who benefited and how?
2. Why didn’t regulators prevent this fraud from occurring? What were they relying on?
3. Why didn’t the directors of Sino-Forest prevent this fraud from occurring? What should they have done to discover the problems that were subsequently uncovered?
4. Why didn’t shareholders foresee this fraud? What were they relying on?
5. Why did Carson Block author the Muddy Waters Research Report? Was he altruistic or self-interested? What did his company stand to gain?
6. What basic assumptions were erroneously made by Ernst & Young that contributed to the audit problems of concern to the OSC?
7. What audit risks become important when auditing in unfamiliar cultures?
8. If you had been on the audit team of Sino-Forest, how would you have avoided allegations of a lack of adequate professional skepticism?
9. If the Chinese system of recording property rights was known to be incomplete, how would you have performed the audit of Sino-Forest’s assets?
10. What audit problem was caused by the Sino-Forest practice of selling timber without receiving cash payments, and how would you have resolved it?
11. What would you do if you were a company director or auditor, and you were advised that your company had incomplete or inadequate record creation and retention practices, no integrated accounting system, and that employees conducted company business from time to time using personal devices and non-corporate email addresses?

In mid-2011, Sino-Forest Corporation was a company with timber operations in China including tree plantation (holding of timber for appreciation and/or harvesting), log and wood products trading, and manufacturing of wood products. Its shares were traded on the Toronto Stock Exchange (TSE) under the TRE symbol, with a total market capitalization in U.S. dollars of $4.2 billion at a share price of $18.21. However, in a research report dated June 2, 2011, Carson Block, the Director of Research of Muddy Waters, LLC, alleged that Sino-Forest Corporation was a reverse takeover (RTO) fraud,1 “a multi-billion dollar Ponzi scheme. accompanied by substantial theft”, and estimated the real value of a share to be less than $1.