Big Four units ap­peal US au­dit­ing rul­ing

Judge’s de­ci­sion called ‘sweep­ing and dam­ag­ing’ and may hurt firms

China Daily (Canada) - - BUSINESS - By WEI TIAN in Shang­hai weitian@chi­nadaily.com.cn

The Chi­nese units of the Big Four ac­count­ing firms on Wed­nes­day filed an ap­peal against a rul­ing in the United States that would bar them from of­fer­ing au­dit ser­vices there and po­ten­tially af­fect com­pa­nies from both coun­tries.

The ap­peal was filed by Deloitte Touche Tohmatsu LLP, KPMG LLP, Price­wa­ter­house­Coop­ers LLP and Ernst & Young LLP, known as the Big Four.

It will be heard by the five mem­bers of the Se­cu­ri­ties and Ex­change Com­mis­sion, ac­cord­ing to a re­port in The Wall Street Jour­nal.

In their ap­peal, the firms said the po­ten­tial ef­fects of a sus­pen­sion are “so sweep­ing and dam­ag­ing that the com­mis­sion it­self should weigh in on the mat­ter”, ac­cord­ing to the re­port.

The firms had pre­vi­ously vowed to pur­sue a joint ap­peal of the rul­ing handed down in Jan­uary by Cameron El­liot, an ad­min­is­tra­tive law judge with the SEC, which sus­pended them from pro­vid­ing au­dits for US-traded com­pa­nies for six months.

The sanc­tion was im­posed af­ter the four firms re­fused to of­fer full co­op­er­a­tion with the SEC’s re­quest for the au­dit pa­pers of their US­traded Chi­nese clients.

The rul­ing would po­ten­tially leave dozens of US­traded Chi­nese com­pa­nies with­out an au­di­tor. It could also af­fect many US-based multi­na­tional com­pa­nies that the Chi­nese au­dit firms as­sist.

“The im­pli­ca­tions of this flawed de­ci­sion reach far be­yond this case and re­quire full re­view by the com­mis­sion,” the firms said.

The firms con­tend the fact that some of the au­dit documents that have been pro­vided to the SEC via Chi­nese au­thor­i­ties were ne­glected. They said the judge “failed to ac­knowl­edge that the diplo­matic dis­pute that trig­gered this pro­ceed­ing has been re­solved”. Harsher penal­ties

In the mean­time, the SEC’s en­force­ment di­vi­sion has also asked the com­mis­sion mem­bers to re­view the rul­ing, ar­gu­ing that harsher penal­ties — longer or even per­ma­nent sus­pen­sions — should be im­posed against the firms, the news­pa­per said.

The en­force­ment di­vi­sion also rec­om­mended the sus­pen­sion of a fifth firm, Dahua CPA, which was cen­sured but not sus­pended in the ini­tial rul­ing. Dahua joined the Big Four firms in the ap­peal.

The rul­ing has yet to take ef­fect, pend­ing the ap­peal. A de­ci­sion by the SEC could be months away or longer. Any SEC de­ci­sion could then be ap­pealed fur­ther to the US Court of Ap­peals in Wash­ing­ton.

Gene But­trill, a part­ner with Jones Day, com­mented ear­lier that the is­sue isn’t some­thing to be fought out in the courts but a diplo­matic mat­ter to be re­solved by the Chi­nese and US gov­ern­ments.

Jim Doty, chair­man of the Pub­lic Com­pany Ac­count­ing Over­sight Board, the top US au­dit reg­u­la­tor, said last week he was op­ti­mistic the two sides will be able this year to sign an agree­ment to in­spect the au­dit work of firms reg­is­tered with it but based in China.

Doty said the Chi­nese reg­u­la­tor and the PCAOB are still ex­chang­ing draft agree­ments and haven’t yet de­cided how in­spec­tions will be con­ducted.

PRO­VIDED TO CHINA DAILY

The Bei­jing of­fice of KPMG LLP. The China units of the Big Four ac­count­ing firms on Wed­nes­day filed an ap­peal to the United States Se­cu­ri­ties and Ex­change Com­mis­sion against a rul­ing that would bar them from pro­vid­ing au­dit ser­vices in the US.

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