Wednesday, September 27, 2023
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US SEC judge suspends ‘Big Four’ China units over audits

Chinese units of the global "Big Four" accounting firms should be suspended from practicing in the United States for six months, a U.S. judge ruled, in an escalation in a long-running dispute over regulators' access to audit documents.

In a harshly worded 112-page ruling, Securities and Exchange Commission Administrative Law Judge Cameron Elliot censured the Chinese affiliates of KPMG, Deloitte & Touche , PricewaterhouseCoopers and Ernst and Young .

(Read more: What's next for China? Economists are split)

The four firms said that they intended to appeal the ruling.

"In the meantime the firms can and will continue to serve all their clients without interruption," the four said in a joint statement.

Chris Ratcliffe | Bloomberg | Getty Images

Elliot also censured a fifth firm, Dahua, previously a member of the BDO international network, but did not impose a six-month suspension.

The decision is not expected to be disruptive to U.S.-listed Chinese companies relying on these firms to review their 2013 books as the ruling does not go into immediate effect.

However if the firms are unsuccessful in the appeal process, which could last for years, then it could cause havoc for companies down the line as they will need to find a new auditor during the suspension period or else be unable to file accounts, a move likely to see their shares suspended.

"If the Big 4 can't sign these audits, all these companies are in a hell of a pickle," said Paul Gillis, an accounting professor at Peking University.

(Read more: China's economy grows 7.7% in fourth quarter)

The move by the SEC may also impact a wave of Chinese listings in the U.S. that were expected to return this year.

Last year's U.S. market rally, in particular the jump in tech shares, re-ignited a push by China-based companies to seek stock offerings on U.S. exchanges.

"There are a lot of IPOs that are picking up steam now, so the companies need to be up front now and speak to their auditors right away, see if they can find a back-up plan," said Paul Boltz, a partner at Ropes & Gray law firm in Hong Kong.

Elliot, an SEC judge who operates independently, sided with the SEC and said the companies "willfully" failed to give U.S. regulators the audit work papers of certain Chinese companies under investigation for accounting fraud.


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