28th January 2014
A six-month suspension should be put in place in order to prevent Chinese units of the global ‘Big Four’ from auditing US-listed companies for the next half year.
This is according to a ruling by a US judge, as part of an escalation regarding regulators’ access to documents.
In the 112-page document, Securities and Exchange Commission Administrative Law Judge Cameron Elliot ruled that the Chinese affiliates of Deloitte & Touche, KPMG, Ernst and Young, and PricewaterhouseCoopers would be barred from auditing them for the next six months.
However, the four firms are to appeal the ruling and have released a joint statement setting out that they seek to initiate a review by the SEC Commission without delay. The ruling will not be final until it is approved by the entire commission.
The ‘Big Four’ noted that they can and will continue to serve all their clients without interruption, but a loss in the appeal could strike fear among the hundreds of Chinese companies listed in the US. Many of these have been the subject of accounting scandals and short-selling.
A refusal to allow the Big Four China units to audit US books means that Chinese companies are likely to find it more difficult to gain the confidence of global investors when floating on the stock market.
Kevin Wang, partner at All Bright Law Offices, a leading Chinese law firm in financial litigation, commented: "The incident will prompt Chinese firms to comply with international financial reporting standards with greater transparency and eased access to auditing documents for regulators.”
He added that it was most likely the standoff would end in a compromise by both sides. However, it is also possible that a temporary ruling would be put in place that would ensure the ‘Big Four’ accounting firms are able to continue their current auditing business while negotiations continue with regulators in the US.