But management is now considering how to respond to the auditors conclusion, and one consideration must be the potential impact on its standing on the Hong Kong Exchange.

Tianhe, which is based in Jinzhou city, China, is Asias largest lubricant additive supplier. It conducted an initial public stock offering in 2014 to help finance its strategy of expanding quickly and become a competitor of the globes largest additive companies.

On March 27 the company announced that trading of its stock had been suspended because of a delay in reporting its 2014 results, caused by auditor requests for additional information, some of it concerning a capital project. Friday was the first time the company provided more details, and it listed three areas that the auditor has investigated:

1) payments for the capital project, which is described as having two components – one for base oils and the other for fluoride lubricating oils;

2) sales of fluorochemicals and lubricant additives to a key customer;

3) bank statements.

Tianhe suggested that the auditors scrutiny was at least partially due to negative publicity that the company received last year when an organization named Anonymous Analytics alleged that the company disseminated false information in the run-up to the IPO. That report also caused a temporary suspension of trading in Tianhes stock.

The auditor advised [Tianhes] board and the Audit Committee in March 2015 that the short attack of September 2014 has heightened the risk sensitivity of the auditor, Fridays statement said.

Tianhe said it addressed many of the auditors questions but was unable to satisfy some requests. The unnamed Nanjing-based vendor selling equipment for the capital project – valued at a total of 4 billion – confirmed the accuracy of Tianhe’s records, provided some of its own records and answered a number of questions. Eventually, however, it refused to allow additional interviews of its personnel, stating that China’s national government considers it a sensitive enterprise related to state secrecy.

According to Tianhe, the auditor wanted to confirm records showing that the key customer, which was not named, bought 1.5 billion in fluorochemicals and 289 million in lubricant additives from Tianhe in 2014. Tianhe said it gave the auditor sales invoices, warehouse vouchers and bank deposit receipts for those sales and that there were no discrepancies. But the auditor also asked to interview key employees with the customer, and the customer refused, saying its policies prohibit such interviews.

The bank statements that the auditor investigated involved accounts at a large national bank used for purchases connected to the capital project. The bank agreed to provide an official confirmation letter for those accounts in line with its typical practice but refused the auditors request to print documentation and provide it to the auditor in the presence of a witness, maintaining that the banks internal policy does not allow this.

Because it was not able to satisfy all of its requests, the auditor proposed disclaiming the audit. Tianhe said it is considering that proposal and also still working toward filing its 2014 annual report.

Tianhe said the capital project is still under way and is scheduled to be completed before the end of this year.