US regulator sues world’s top accounting firms for blocking Chinese firms audit
04 Dec 2012
The US Securities and Exchange Commission (SEC) yesterday announced charges against the Chinese affiliates of the top four accounting firms and another large US accounting firm for withholding documents of China-based companies under investigation for accounting frauds.
The SEC has charged the Chinese affiliates of Deloitte Touche, Ernst & Young, KPMG, PricewaterhouseCoopers and BDO for violating the Securities Exchange Act and the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide the regulator with audit work papers of any company trading on the US Stock Exchanges.
The SEC has for months been seeking documents of nine Chinese companies listed on the US Stock Exchanges in order to audit these companies of possible fraud, but the audit firms say they cannot comply with the SEC's request as they are bound by China's state secrecy laws.
''Only with access to work papers of foreign public accounting firms can the SEC test the quality of the underlying audits and protect investors from the dangers of accounting fraud,'' said Robert Khuzami, director of the SEC's division of enforcement.
According to Deloitte, under Chinese law, accounting firms in China are not allowed to provide documents, including audit work papers, directly to any overseas regulator without the approval of the Chinese government.
Khuzami counters this by saying ''Firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions.''
