Deloitte’s China affiliate has been fined by the SEC over malpractice, amid an ongoing audit dispute between Washington and Beijing.
The Securities and Exchange Commission (SEC) has fined Deloitte’s China affiliate $20 million over audit malpractice, according to a statement.
The US regulator found that Deloitte China staff had repeatedly asked clients, including foreign companies listed on US exchanges, to conduct their own audit work and select samples for testing in preparation for audit documentation that was subsequently used to show that the auditor had itself obtained the necessary supporting evidence for accounting entries.
This made it appear that Deloitte China had done the necessary testing required for financial statements and internal controls when it hadn't.
Woefully Short
«We find that Deloitte-China fell woefully short of professional auditing requirements in numerous component audits of Chinese operations of US issuers and audits of Chinese companies listed on US exchanges,» SEC chair Gary Gensler said.
«These basic, foundational auditing requirements are necessary to instill trust in our capital markets. It’s a privilege for issuers to access our markets — the largest, deepest, most liquid markets in the world. Investors in U.S. markets should be protected — and have trust in a company’s financial numbers — regardless of whether an issuer is foreign or domestic.»
The timing of the fine coincides with ongoing work between authorities in China and the Public Company Accounting Oversight Board (PCAOB) following a key agreement reached last month related to audit document access that could potentially prevent more than 200 Chinese companies from being delisted from US exchanges.
No Direct Link
«While the SEC’s action today does not implicate a violation of the Holding Foreign Companies Accountable Act, the action does underscore the need for the Public Company Accounting Oversight Board (PCAOB) to be able to inspect Chinese audit firms,» Gensler added in the latest statement.
«A fundamental goal of the PCAOB’s inspection regime is to identify weaknesses in the firms’ quality control processes — the very weaknesses at issue in this case.»
