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'Big Four' accountants' China units face US suspension | 'Big Four' accountants' China units face US suspension |
(about 14 hours later) | |
A US judge has ruled that Chinese units of the so-called Big Four accounting firms should be suspended from auditing firms publicly traded in the US. | A US judge has ruled that Chinese units of the so-called Big Four accounting firms should be suspended from auditing firms publicly traded in the US. |
They had been charged over refusing to hand over auditing data on China-based companies which are listed in the US. | They had been charged over refusing to hand over auditing data on China-based companies which are listed in the US. |
The judge ruled that the units had "willfully violated" US laws. | The judge ruled that the units had "willfully violated" US laws. |
The ruling does not go into effect immediately. The four firms called the decision "regrettable" and said they will appeal. | |
"In the meantime the firms can and will continue to serve all their clients without interruption," the companies - Deloitte Touche, PricewaterhouseCoopers, KPMG and Ernst & Young - said in a joint statement. | "In the meantime the firms can and will continue to serve all their clients without interruption," the companies - Deloitte Touche, PricewaterhouseCoopers, KPMG and Ernst & Young - said in a joint statement. |
A fifth firm, Dahua, was also censured by the judge but not suspended. | A fifth firm, Dahua, was also censured by the judge but not suspended. |
'Hell of a pickle' | 'Hell of a pickle' |
While the firms are appealing, it could have huge consequences if it the initial decision ultimately stands. | While the firms are appealing, it could have huge consequences if it the initial decision ultimately stands. |
It could complicate audits of various Chinese firms listed in the US, as well as American firms operating in China. | It could complicate audits of various Chinese firms listed in the US, as well as American firms operating in China. |
"This decision will be a huge shock in Beijing," said Paul Gillis, an accounting professor at Peking University in Beijing. | "This decision will be a huge shock in Beijing," said Paul Gillis, an accounting professor at Peking University in Beijing. |
"The Securities and Exchange Commission has pushed a lot of chips out on the table." | "The Securities and Exchange Commission has pushed a lot of chips out on the table." |
He added that if the big accounting firms were unable to sign audits it would leave companies in "a hell of a pickle" as the relatively smaller accounting firms may not have the capacity to serve big clients. | He added that if the big accounting firms were unable to sign audits it would leave companies in "a hell of a pickle" as the relatively smaller accounting firms may not have the capacity to serve big clients. |
However, some others said the legal proceedings could take a while, which would allow the four firms to continue to service their clients in the near term. | However, some others said the legal proceedings could take a while, which would allow the four firms to continue to service their clients in the near term. |
"I think the decision came totally unexpected to the firms," said Jason Flemmons, a senior managing director at FTI Consulting. | "I think the decision came totally unexpected to the firms," said Jason Flemmons, a senior managing director at FTI Consulting. |
"That said, this will undoubtedly be appealed, which will significantly delay the institution of the six-month bars." | "That said, this will undoubtedly be appealed, which will significantly delay the institution of the six-month bars." |
Ongoing dispute | Ongoing dispute |
Various Chinese firms have listed on US stock exchanges in recent years. | Various Chinese firms have listed on US stock exchanges in recent years. |
However, claims of fraud and questionable auditing standards at some of the companies have dented investor confidence. | However, claims of fraud and questionable auditing standards at some of the companies have dented investor confidence. |
These concerns have also prompted US regulators to demand access to auditing documents kept in China by accounting firms. | These concerns have also prompted US regulators to demand access to auditing documents kept in China by accounting firms. |
However, the audit firms have refused to release these records citing China's state law says that Chinese company records can be claimed as state secrets. | However, the audit firms have refused to release these records citing China's state law says that Chinese company records can be claimed as state secrets. |
The US Securities and Exchange Commission (SEC) said it was gratified by the decision. | The US Securities and Exchange Commission (SEC) said it was gratified by the decision. |
"These records are critical to our ability to investigate potential securities law violations and protect investors," said Matthew Solomon, the chief litigation counsel in the SEC's Enforcement Division. | "These records are critical to our ability to investigate potential securities law violations and protect investors," said Matthew Solomon, the chief litigation counsel in the SEC's Enforcement Division. |
Meanwhile, the two countries have been looking to resolve this issue as well. | Meanwhile, the two countries have been looking to resolve this issue as well. |
In May last year, the two sides reached an agreement that allowed some some audit documents of US-listed Chinese firms to be shared. | In May last year, the two sides reached an agreement that allowed some some audit documents of US-listed Chinese firms to be shared. |
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