US charges accountants over China

Written By Unknown on Selasa, 04 Desember 2012 | 20.24

3 December 2012 Last updated at 12:37 ET

The US financial regulator has charged the Chinese units of five accounting firms - including the so-called Big Four - over refusing to hand over auditing data on China-based companies.

The companies are under investigation by the Securities and Exchange Commission for "potential accounting fraud against US investors".

The nine China-based firms are publicly traded in the US.

An administrative law judge will schedule a hearing on the matter soon.

The five firms are the Chinese affiliates of the Big Four - Deloitte Touche, Ernst & Young, KPMG and PricewaterhouseCoopers - as well as the accounting firm BDO's China unit.

The SEC said the audit firms had refused to co-operate in the investigations. The firms are charged with the Securities Exchange Act and the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide the SEC upon request with audit work papers involving any company trading on US markets.

"Only with access to work papers of foreign public accounting firms can the SEC test the quality of the underlying audits and protect investors from the dangers of accounting fraud," said Robert Khuzami, director of the SEC's enforcement division.

"Firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions."

Claims of fraud and questionable auditing standards at several US-listed Chinese companies, for example Sino-Forest Corporation, have dented investor confidence.

The scandals have prompted US regulators to react by demanding access to auditing documents kept in China by accounting firms.

China's state law says that Chinese company records can be claimed as state secrets. The firms have cited this in refusing to release their records.

Last year, the regulator asked a federal court to force Deloitte to reveal records for the Chinese company Longtop Financial Technologies, as part of an investigation into reports of fraud.

And in August, Hong Kong's market regulator said it was taking Ernst and Young to court to force it to reveal information on a former China-based client, in an unprecedented move.


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