Yesterday, the US Securities and Exchange Commission has granted the request of Chinese affiliates of the four largest accounting companies in the world and the regulator's enforcement division for a 90-day extension for an appeal briefing. According to an order filed by the financial regulator, Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd are appealing a January decision by an administrative judge, which bar them from leading the audits of companies that trade in the US after their failure to provide documents for a series of accounting fraud probes currently being conducted.
The SEC said in the order, "(The parties stated that the 90-day extension would help) continued settlement efforts. Continuing these talks while briefing the appeal would present challenges, given the breadth, complexity, and sensitivity of the issues involved."
In 2012, the SEC has filed an administration action against the auditors after the former has struggled for several years to obtain information for dozens of accounting fraud probes on companies base din China. In an order dated December 3, the SEC said the Chinese affiliates of the four firms refused to cooperate with the accounting probes. The subject of the probes are nine companies who securities are currently being traded in the US, the order detailed.
Bloomberg explained that the auditors are having issues with complying to US and Chinese laws. US legislation requires companies to turn over all documents pertinent to regulators, while the law in China prohibits the transferring of sensitive data to foreign parties. Although an accord between the two countries regarding the matter has been struck in May last year that allowed some cooperation, the accord could not enforce inspections, which is a key requirement for audit firms who are doing work for firms listed in the US.
On January 22, US Administrative Law Judge Cameron Elliot deemed that the accounting firms have violated the Sarbanes-Oxley Act of 2002, and was banned from practicing for six months. BDO China Dahua CPA Co was only censured as the company has already withdrawn from the US market.
Former SEC accountant Jason Flemmons said in January that should the order be finalized, it would force over 200 Chinese companies who are trading in the US to find new auditors, while multinational companies who have major operations in China will need to bring in new firms to check the units.
