Dispute over regulators’ access to documents

 

A long-running dispute over regulators’ access to documents of Chinese firms is threatening to escalate after a US judge ruled that the China units of the global “Big Four” accounting firms should be suspended from auditing US publicly listed companies for six months.

The companies had been charged over refusing to hand over auditing data on China-based companies which are listed in the US. Securities and Exchange Commission (SEC) administrative law judge Cameron Elliot ruled that the Chinese units of KPMG, Deloitte Touche, PricewaterhouseCoopers and Ernst and Young had “willfully violated” US laws by refusing to release the information.

A fifth firm, Dahua, was also censured by Elliot but not suspended. “Respondents operated large accounting businesses for years, knowing that, if called upon to cooperate in a commission investigation into their business, they must necessarily fail to fully cooperate and might thereby violate the law,” he said.

“Such behaviour does not demonstrate good faith, indeed, quite the opposite – it demonstrates gall,” said Elliot.

The auditors have refused to turn over such papers for fear of violating Chinese secrecy laws and they say it is up governments in Washington and Beijing to resolve the dispute.

The four firms said that they intended to appeal against the ruling. “In the meantime the firms can and will continue to serve all their clients without interruption,” they said in a joint statement.

In recent years, several US-listed Chinese companies have become embroiled in accounting scandals.

The SEC has tried to delist or de-register some of these distressed firms, but say their fraud investigations have been hampered by the companies’ failure to hand over audit work papers. The auditors say China’s state law says that Chinese company records can be claimed as state secrets.

The ruling has spooked multinational firms and the US Chamber of Commerce plans to lobby American officials to reach a diplomatic deal with China.

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