Shanghai-based Sunrise Real Estate Group Inc., which trades in the U.S., is restating prior results after determining that it misapplied revenue-recognition accounting rules.
Sunrise said it revised its annual financial statements for 2007 and 2006, and for the March quarter. The new numbers increase the company’s deferred tax assets and deposits received from underwriting sales. They defer revenue recognition to the consummation of the sale, generally when the remaining maximum exposure to loss is reduced below the amount of gain deferred, the company filing said.
As a result, net asset values as at year-end 2007 and on March 31 were reduced by $6.3 million and $6.6 million, respectively. The correction of the error reduced company losses for 2007 by $157,811, and gave no effect on the income statement for each of the first two 2008 quarters.
The company said the decision to restate was made after extensive review of the interpretation on SFAS 66, and discussion between its management and independent auditors. SFAS 66 provides that profit on real estate sales transactions shall not be recognized by the full accrual method until 1) a sale is consummated; 2) a buyer’s initial and continuing investments are adequate to demonstrate commitment to pay; 3) a seller’s receivable is not subject to future subordination; and 4) a seller has transferred to the buyer the usual risks and rewards of ownership in a transaction.
The main activities of Sunrise Real Estate Group, traded on the OTC Bulletin Board, involve real estate agency, underwriting sales, and property management. It is an investment holding company owning the majority stakes of two China-based subsidiaries: Shanghai Shang Yang Real Estate Consultation Co. and Shanghai Xinjiyang Real Estate Consutation Co.Ltd.
Back in June, Sunrise promoted financial controller Wang Wen Yan to CFO. He replaced Art Honanyan, who had resigned earlier in the month.