China has criticised a US decision to ban the Chinese arms of the big four global auditing firms from working for US-listed companies, adding fuel to a longstanding dispute over foreign access to Chinese financial information.
An administrative trial judge with the US Securities and Exchange Commission ruled this week that the four joint ventures – Ernst & Young Hua Ming, KPMG Huazhen, Deloitte Touche Tohmatsu and PwC Zhong Tian – had violated US rules by failing to give US regulators audit documents of Chinese companies under investigation for accounting fraud.
The judge recommended that the Chinese affiliates of the big four be suspended from auditing US-listed Chinese companies for six months, a threat that has knocked nearly 10 per cent off the share prices of Chinese companies ranging from search engine operator Baidu to travel website Qunar.
Although these Chinese companies – which have issued share-like depositary receipts in the US – can turn to smaller auditors, a ban on the big four would make it difficult for them to publish their 2013 results on schedule. This delay could, in turn, result in their suspension from trading and throw the future of their US listings into doubt. The big four have said they will appeal against the SEC ruling.
In the first official Chinese comment on the decision, the securities regulator in Beijing had harsh words for its US counterpart.
“The ruling ignores the efforts and progress made by China on providing audit documents and in cross-border law enforcement,” said Deng Ge, a spokesman with the China Securities Regulatory Commission. “The SEC should bear full responsibility for the possible consequences of the ban.”
Auditors of US-listed Chinese companies complain that they have been placed in an impossible position because of a failure of the country’s two regulators to reach agreement on auditing practices.
On one hand, the US has demanded that auditors hand over their working papers after a series of Chinese companies listed in the US defrauded investors by exaggerating their profits and lying about their business ventures. On the other hand, Chinese regulators have said it would be illegal to share such information without express permission.
Investors had thought the dispute between the US and China was on the way to being settled last year, after the US Public Company Accounting Oversight Board (PCAOB) and the China securities regulator had signed a memorandum of understanding. The MOU allowed US regulators to request auditing information from Chinese companies suspected of fraud, but they remained barred from conducting on-the-ground inspections of Chinese auditors.
美国证券交易委员会(SEC)的一名行政审判法官本周裁定，四家合资公司——安永华明(Ernst & Young Hua Ming)、毕马威华振(KPMG Huazhen)、德勤华永(Deloitte Touche Tohmatsu)以及普华永道中天(PwC Zhong Tian)——违反了美国的规则，未能向美国监管机构提交正受到会计欺诈调查的中国公司的审计文件。