(Yicai Global) Nov. 23 -- Hunan Er-Kang Pharmaceutical Co. [SHE:300267] will resume share trading today after a six-month suspension, the firm said in a statement yesterday evening. Its 2016 net profit will be reduced by a projected CNY231 million after major accounting errors were discovered through self-inspections. China Securities Regulatory Commission (CSRC) has inquired into the matter, and investigations are in progress.

The problem stemmed from failing to collect data from their Cambodian subsidiary and the public company misjudged the situation when provincial governments made significant changes to their policies on centralized drug procurement in 2015, per the statement. As a result, some of the hollow capsule modified starch that the firm stocked was not used for producing starchy plant hollow capsules, and sales were not realized for all of the products.

The sales department and the Cambodian subsidiary failed to inform the finance department of the changes in time during the compilation of financial statements for last year, resulting in the annual operating income and net profit being inflated by CNY229 million and CNY209 million respectively.

Responding to its alleged affiliation with North American distributor SYN and sales data falsification, Er-Kang Pharmaceutical said that it had communications on technical matters with SYN's sole owner Huang Zuyun, but there was no affiliation between the companies.

SYN returned some sold modified starch products late last year after some clients cancelled orders, but "the international sales unit did not notify the company's headquarters of the returns or how they handled the merchandise, and consequently, the finance department was unable to treat the sales returns according to corporate accounting principles," resulting in inflations of CNY26 million and CNY23 million in operating income and net profit respectively in the annual report disclosed in April, 2017.

The media reported alleged false earnings results in the report in May, and Er-Kang disclosed that it was under investigation by the CSRC three months later. The inquiry is still ongoing, but the firm carried out self-inspection and published the results. Its shares were suspended from the Growth Enterprise Market Index last month.

In August, China Post Venture Capital Fund, China Asset Management and Essence Fund downgraded Er-Kang's valuations by as much as 30 percent.