Alibaba Group Holding Ltd (NYSE:BABA)’s entertainment arm Alibaba Pictures is found to have misstated tax payments and financial impact of convertible bonds. Now it must pay interest on charges. The misstatements came to light when auditing firm PricewaterhouseCoopers (PwC) conducted an independent analysis of Alibaba Pictures’ past financial reports.

Alibaba Pictures Misstated Taxes, Finds PwC

Alibaba’s deals to come under further scrutiny

In March, the Chinese e-commerce giant acquired 60% stake in Hong Kong-listed ChinaVision Media for $800 million and renamed it Alibaba Pictures. The transaction was completed in June. According to the South China Morning Post, the movie production company incorrectly reported  the amount it owned in business, income and value-added taxes.

The accounting discrepancy was first found in August. Now experts are questioning Alibaba’s due diligence as it gears up to acquire more assets. According to Bloomberg, the Hangzhou-based online retailer has spent more than $16 billion on acquisitions since 2012. After raising $25 billion in its New York IPO, Alibaba currently has more than $20 billion in cash and cash equivalents.

Alibaba Pictures said in a filing with the Hong Kong Stock Exchange that the mistakes were caused by lax accounting practices under the previous management team, rather than a fraud. After the acquisition, the Jack Ma-led company had changed Alibaba Pictures’ management. The mistakes occurred in 2012 and 2013. Now that the Chinese company has gone public, its acquisitions will come under more scrutiny.

Alibaba Pictures to pay interest on previous years’ taxes

Alibaba Pictures said its net profit for the first half of 2014 will likely decline by HK$324 million to HK$390 million (US$50.2 million), largely due to asset write-offs resulting from the past accounting mistakes. According to the filing, Alibaba Pictures will make interest payments on previous years’ taxes. It will reduce the company’s 2013 profits by HK$25 million (US$3.2 million) and 2012 profits by HK$29 million.

Hong Kong-listed shares of the entertainment company have been suspended since August. The stock is expected to resume trading after a board meeting on Dec.19.