China Auditors Barred for Six Months for Not Aiding SEC Probes

January 24, 2014 Leave a comment

China Auditors Barred for Six Months for Not Aiding SEC Probes

Chinese affiliates of the four largest accounting firms were barred for six months from leading audits for U.S.-listed companies after failing to comply with Securities and Exchange Commission orders for documents at the heart of a series of accounting fraud probes.

The auditors’ “actions involved the flouting of the commission’s regulatory authority, which may not be as egregious as, say, accounting fraud, but is still egregious enough that it weighs against leniency,” U.S. Administrative Law Judge Cameron Elliot wrote in a decision posted today on the SEC’s website. The firms were also censured.

The firms receiving the bans are Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd. BDO China Dahua Co., Ltd. — now called Dahua CPA — was only censured since it had already withdrawn from the U.S. market.

The SEC filed an action against the auditors in 2012 after struggling for years to obtain information for dozens of accounting fraud probes at China-based companies. After an agreement between the two countries allowed some information to be shared, the accounting firms argued, unsuccessfully, that the SEC was getting what it needed and that the case jeopardized the listings of hundreds of Chinese companies trading in the U.S.

Dahua’s lawyer Deborah Meshulam declined to comment. Phone calls and e-mails to the other firms were not immediately answered.

The auditors are caught between U.S. law, which requires them to turn over all documents requested by regulators, and Chinese law, which prohibits transferring data to foreign parties that might contain state secrets. While the May accord between the two countries opened the door for some cooperation, it didn’t allow for inspections, a key requirement for audit firms doing work for U.S.-listed companies.

“To the extent Respondents found themselves between a rock and a hard place, it is because they wanted to be there,” the judge wrote. “A good faith effort to obey the law means a good faith effort to obey all law, not just the law that one wishes to follow.”

To contact the reporter on this story: Alan Katz in Washington at akatz5@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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