On the same day that Canadian regulators brought allegations against an accounting firm over its audit work for a Chinese issuer, the U.S. Securities and Exchange Commission (SEC) also began administrative proceedings against the Chinese affiliates of several large accounting firms for refusing to produce documents demanded by its investigators.
The SEC said Monday it has charged five firms —BDO China Dahua Co. Ltd, Deloitte Touche Tohmatsu Certified Public Accountants Ltd, Ernst & Young Hua Ming LLP, KPMG Huazhen (Special General Partnership), and PricewaterhouseCoopers Zhong Tian CPAs Limited — with securities law violations for refusing to provide audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors.
According to the SEC’s order instituting the proceedings, SEC investigators have been making efforts for the past several months to obtain documents from these firms. The audit materials are being sought as part of SEC investigations into potential wrongdoing by nine China-based companies whose securities are publicly traded in the U.S. The audit firms have refused to cooperate in the investigations, it says.
An administrative law judge will schedule a hearing and determine the appropriate remedial sanction against the firms. The order requires the administrative law judge to issue an initial decision no later than 300 days from the date of service of the order.
“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 division of enforcement. “Firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions.”
The move comes on the same day that the Ontario Securities Commission (OSC) has accused accounting firm, Ernst & Young LLP, of failing in its role as the auditor of Sino-Forest Corp. Those allegations have not been proven.