Ernst & Young Hong Kong, which resigned as the auditor in 2010 for a Chinese water treatment company planning an initial public offering, doesn’t hold the audit papers the city’s regulator wants, a court was told.
“The performance of the engagement was carried out by Hua Ming and all the working papers were created by staff of Hua Ming,” the audit firm’s lawyer Benjamin Yu said today, referring to its Beijing-based affiliate Ernst & Young Hua Ming.
Hong Kong’s Securities and Futures Commission, which is seeking the documents in relation to Standard Water Ltd.’s failed attempt to go public, believes Ernst & Young Hong Kong either possesses or has access to the documents, its lawyer Jat Sew Tong told the city’s Court of First Instance.
The regulator is making banks criminally liable for false statements in IPO documents and strengthening regulation after a series of accounting scandals involving Chinese companies. It says auditors must be able to discuss their working papers as part of Hong Kong’s regulatory framework, and that its lawsuit followed consultation with Chinese authorities.
Hong Kong’s regulatory framework presumes that “the watchdog auditor will be able to put the bloodhound regulator on the scent,” SFC Chairman Carlson Tong said in a speech earlier this month.
Ernst & Young Hong Kong resigned as Standard Water’s auditor in March 2010 citing the discovery of inconsistencies in the company’s documents. Standard Water subsequently withdrew its listing application.
The work papers held by Ernst & Young Hua Ming can’t be provided to the SFC directly because of secrecy laws in China, Ernst & Young Hong Kong has said.
The SFC’s lawyer Jat today said the audit firm has failed to demonstrate what secrecy laws apply.
The case is Securities and Futures Commission and Ernst & Young, HCMP1818/2012.
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