China Auditors in SEC Settlement Talks as Extension GrantedDarren Boey
Chinese affiliates of the four largest accounting companies and U.S. regulators have been discussing a settlement in a dispute over access to audit documents belonging to the firms’ clients.
The Securities and Exchange Commission granted yesterday a 90-day extension requested by the four firms and the SEC’s enforcement division for an appeal briefing, according to an order filed by the regulator.
Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd. are appealing an administrative judge’s January decision to bar them from leading audits of companies traded in the U.S. after failing to provide documents at the heart of a series of accounting fraud probes.
The parties stated that the 90-day extension would help “continued settlement efforts,” the SEC said. “Continuing these talks while briefing the appeal would present challenges, given the breadth, complexity, and sensitivity of the issues involved,” according to the order.
Sherine Ong, a PricewaterhouseCoopers spokeswoman in Hong Kong, declined to comment in an e-mail, as did Nina Mehra, a KPMG spokeswoman. Deloitte and Ernst & Young spokesmen didn’t immediately respond to phone and e-mail requests for comment.
The SEC filed an administrative action against the auditors in 2012 after struggling for years to obtain information for dozens of accounting fraud probes at China-based companies.
The four firms’ Chinese affiliates refused to cooperate with accounting investigations into nine companies whose securities are publicly traded in the U.S., the SEC said in an order dated Dec. 3.
The auditors are caught between U.S. law, which requires them to turn over all documents requested by regulators, and Chinese law, which prohibits transferring data to foreign parties that might contain state secrets.
While a May 2013 accord between the two countries opened the door for some cooperation, it didn’t allow for inspections, a key requirement for audit firms doing work for U.S.-listed companies.
U.S. Administrative Law Judge Cameron Elliot found on Jan. 22 that the firms had violated the Sarbanes-Oxley Act of 2002 and handed down a six-month ban from practicing. Another firm, BDO China Dahua CPA Co., was only censured since it had already withdrawn from the U.S. market.
If finalized, the bar would force more than 200 Chinese companies traded in the U.S. to find new auditors, while multinationals with significant operations in China would have to bring in new firms to check those units, Jason Flemmons, a former SEC accountant, said in January.