SEC Suspended “Big Four” China Units for 6 months over Audits Scandal

Mona Shah & Associates Global Blog

SEC Suspended “Big Four” China Units for 6 months over Audits Scandal

January 23, 2014

Big Four China Suspended  

The World’s four biggest accounting firms are suspended from auditing US listed companies for 6 months, according to the ruling from Securities and Exchange Commission (SEC) Administrative Law Judge Cameron Elliot. Judge Elliot censured the Chinese affiliates of KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst and Young.

Judge Elliot operates independently, sided with the SEC and said the companies “willfully” failed to give U.S. regulators the audit work papers of certain Chinese companies under investigation for accounting and securities fraud.

The next day January 24, 2014, one of the Big Four Chairman Michael Andrew stated that “We are in dialogue with the Ministry of Finance in China on the matter.”[1]

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Diplomatic Crisis

The SEC for years has been trying to obtain documents from the four firms to investigate the securities fraud at Chinese companies whose stocks are listed in the United States. The Big Four have refused to turn over audit papers to the US authorities fearing violating Chinese Secrecy Laws. This matter has escalated to a diplomatic crisis rather than a mere financial matter.

China’s securities regulator said on Friday it deeply regretted Elliot’s ruling. At a regular news briefing, ministry spokesman Deng Ge said China hoped the SEC “would make the correct decision” on the case, adding that “the SEC would bear all the responsibility for consequences of its action.”

The SEC has tried to delist or de-register some troubled companies, but has said investigations into possible fraud were stymied by the firms’ failure to turn over audit work papers.

In an expert witness testimony in the SEC judgment, former SEC Commissioner Paul Atkins said that the issue may have to be dealt with by the U.S. President and the Chinese premier.[2]


[1] Big Four firms, China in talks over corporate audit impasses: KPMG: January 24, 2014, Reuters: http://www.reuters.com/article/2014/01/24/us-china-audits-kpmg-usa-idUSBREA0N1AO20140124 (Last retrieved January 25, 2014)

[2] SEC judge bars “Big Four” China units for six months over audits. January 23 ,2014:

http://www.reuters.com/article/2014/01/23/us-sec-china-bigfour-idUSBREA0L28D20140123

(Last retrieved January 25, 2014)

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