Securities and Exchange Commission Charges 5 Accounting Firms in China
December 5, 2012 14 Comments
By Guo Min
On December 3rd, the Securities and Exchange Commission charged the Chinese affiliates of five big accounting firms: Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers — the so-called Big Four — and BDO, with violating Securities Exchange Act and Sarbanes-Oxley Act, claiming they failed to produce documents from their audits of several China-based companies under investigation for fraud. The agency said that it had been trying for months to obtain certain paperwork from the accounting firms. But the government said the auditors “refused to cooperate,” citing prohibitions in local law.
According to Robert Khuzami, the commission’s enforcement director, firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions, meaning that all accounting firms should know about the regulation. And this is not the first time that SEC has taken enforcement action against the firm for refusing to turn over documents in connection with a Chinese company under investigation. Deloitte (Shanghai) was sued by SEC in May, 2012, and SEC alleged that violated a provision in the 2002 Sarbanes-Oxley Act which requires foreign public accounting firms to provide their work papers.
So why would these accounting firms choose to refuse to provide paperwork? Actually, most of the accounting firms noted the difficulties of navigating the conflicting laws of the United States and China. The five accounting firms in China should follow both the regulation of SEC as well as the law in China. According to Archives Law and Privacy Act of China, Chinese accounting firms cannot directly provide documents to any foreign institutions without the Chinese Government’s permission, therefore, as an accounting firm regulated by Chinese Government, it would an action that violates the law if Deloitte or other firms provided paperwork to SEC.
Since Chinese and the US legal systems are different, and it seems that the difference would have a great impact on accounting firms in China, the two governments should establish an agreement towards Cross-border audit supervision, which may help to eliminate the conflict between two systems and the impact on Chinese accounting firms as soon as possible. And for Chinese Government, the issue would be more urgent because the action of SEC has caused credit crisis for Chinese companies, and if the conflict still exists, it would be a serious problem for the development of Chinese companies in the US.
“S.E.C. Charges 5 Firms Over Audits in China”. Retrieved December 4th, 2012
“UPDATE 5-US SEC charges China affiliates of top accounting firms”. Retrieved December 4th, 2012
“SEC charges Deloitte unit over audit work papers”. Retrieved December 4th, 2012
“SEC起诉德勤上海 中概股或遭新信任危机”. Retrieved December 4th, 2012