The US Securities and Exchange Commission (SEC) is to fine the four China-based affiliates of the Big Four accounting networks following a long-running investigation into potential fraud, which will see each firm pay $500,000 (£322,000) and make commitments about releasing client papers in future
This agreement is part of a settlement of a long running dispute over their previous refusal to turn over documents related to the investigations of potential fraud.
Under the settlement the firms, which were members of the Big Four’s international networks, have also admitted that they did not produce documents before the proceedings were instituted against them in 2012 and have agreed to follow specific steps over the next four years designed to ensure that the SEC is able to obtain audit documents from them in the future.
The penalties for failure to produce documents as required could include an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or the resumption of the current proceeding against all four firms, the SEC said.
Andrew Ceresney, director of the SEC’s enforcement division, said: ‘As we repeatedly have stated throughout this litigation, obtaining an audit firm’s workpapers is critical to enforcement staff’s ability adequately to protect investors from the dangers of accounting fraud.’
‘This settlement recognizes the SEC’s substantial recent progress in obtaining those documents from registered firms in China. The settlement also holds four of the firms accountable for previously violating U.S. rules, and makes clear that should production of documents cease, the SEC can restart the administrative proceeding, ‘ Ceresney said.
The four firms involved are Deloitte Touche Tohmatsu Certified Public Accountants Ltd, Ernst & Young Hua Ming LLP, KPMG Huazhen (Special General Partnership), and PricewaterhouseCoopers Zhong Tian CPAs Ltd. Last year an administrative law judge found they had wilfully refused to provide the SEC with workpapers and related documents in connection with their audit work for nine China-based companies that had securities registered in the US.
Although the firms released workpapers after this ruling, they also petitioned the SEC to review this decision, and the current settlement arises from this.
The SEC said proceedings are continuing against a fifth China-based accounting firm, Dahua CPA Ltd, which until 2013 was part of BDO’s network.
Antonia Chion, associate director of the enforcement division, said: ‘The settlement is an important milestone in the SEC’s ability to obtain documents from China. Of course, we hope that it is an enduring milestone. The settlement provides a path forward for obtaining productions and enhanced future cooperation from the Big Four firms.’
