US judge imposes suspension on Big Four accounting firms' China units
A US judge has ruled that the China-based units of the Big Four global accounting firms should be suspended from auditing US-listed companies for the next six months. They are accused of failing to disclose information to US regulators investigating Chinese companies.
Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers said they plan to launch an appeal and will continue to serve clients in the interim. They are primarily responsible, among other things, for auditing the host of VC-backed Chinese companies eyeing IPOs in 2014.
Judge Cameron Elliot, who presides on Securities & Exchange Commission (SEC) issues, said the accounting firms had willfully held back information. The firms argue that they are unable to comply as doing so may constitute a violation of Chinese secrecy laws - a dilemma that can only be resolved through government-to-government negotiations.
The ruling does not go into immediate effect but if the accounting firms' appeal fails, Chinese companies would have to find new auditors or likely see their shares suspended.
The disclosure issue became a priority for US regulators following the spate of accounting scandals at US-listed Chinese firms between 2010 and 2012. The SEC tried to delist some companies but investigations were stymied by a lack of information from the accounting firms.
A breakthrough came last year when Chinese regulators agreed to supply audit documents for these companies to the SEC, but the amount of information provided has not met US requirements.
An accounting firm is supposed to register with the Public Company Accounting Oversight Board (PCAOB) if it is responsible for auditing more than 20% of a company's consolidated assets or revenue.
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