Deloitte’s Chinese affiliate to pay $20 million to settle probe into outsourced work



  • Auditors let some companies pick accounting entries to review, violating standards, SEC says

The Chinese affiliate of Big Four accounting firm Deloitte will pay $20 million to settle regulatory claims that it outsourced some audit work to companies whose financial statements it was hired to independently review.

The Securities and Exchange Commission announced the settlement on Thursday, saying Deloitte Touche Tohmatsu Certified Public Accountants LLP asked clients to do some work it should have done as part of its review. The Deloitte-China auditors asked clients to pick their own accounting samples for testing and then create records to make it appear there was evidence to support the auditors’ work, the SEC said.

The conduct involved 12 companies, including nine American firms whose financial results in China were reviewed by the China-based audit firm, SEC officials said. Deloitte-China also asked three U.S.-listed Chinese firms to select accounting entries to review and then prepare documents purporting to show that the auditors had independently reviewed them, the SEC said. The SEC didn’t find material accounting problems in the financial statements of those firms, officials said.

The case underscores the risks that U.S. shareholders face when investing in Chinese companies or multinational firms with significant operations in the world’s second-largest economy. China for years prevented U.S. audit regulators from inspecting audit work papers held inside the country.

American regulators recently began inspecting some China-based audits after the passage of a U.S. law that threatens to delist Chinese companies from U.S. stock exchanges if their auditors cannot be inspected for three consecutive years. Audit work conducted by Deloitte’s China unit has also been selected for review by the U.S. accounting watchdog, The Wall Street Journal previously reported.

Deloitte-China discovered the misconduct itself and reported the problems to the specialized U.S. audit regulator, the Public Company Accounting Oversight Board. The SEC gave the company credit for cooperating with the investigation and fixing problems, officials said.

The SEC required Deloitte-China, as part of the settlement, to undertake several compliance improvements, including hiring an independent consultant reporting to Deloitte’s global office in the United Kingdom. The Chinese firm must then implement a plan to address deficiencies found by the consultant, the SEC said.

“We find that Deloitte-China fell woefully short of professional auditing requirements in numerous component audits of Chinese operations of U.S. issuers and audits of Chinese companies listed on U.S. exchanges," said SEC Chairman Gary Gensler. “These basic, foundational auditing requirements are necessary to instill trust in our capital markets."


This story has been published from a wire agency feed without modifications to the text

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