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Accounting fiasco

Source : BUSINESS_STANDARD
Last Updated: Wed, Dec 05, 2012 03:51 hrs

Chinese affiliates of five accounting firms were charged by the US Securities and Exchange Commission (SEC) on Monday with violating securities laws. They had failed to produce documents from their audits of China-based firms under investigation for fraud

  • Accounting firms cited by the SEC are the Chinese affiliates of the so-called Big Four — Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers — and BDO. SEC did not name the firms' Chinese clients 
  • SEC has been investigating Chinese companies that have gone public in the US, and has been trying for months to obtain paperwork from these accounting firms  
  • Government said the auditors "refused to cooperate"  
  • Most firms said they were cooperating, but noted difficulties of navigating the conflicting laws of the US and China

HIGH STAKES

  • Accounting firms could face sanctions  
  • Under the law, government could prohibit them from practicing before the SEC  
  • That means their audits of publicly traded companies would not satisfy securities laws.

REVERSE MERGERS: Dozens of Chinese-based businesses have raised money in the US through reverse mergers. Such backdoor listings allowed companies to go public without the high costs and regulatory scrutiny of traditional offerings.

  • Investors, looking to capitalise on the growth in China, rushed to buy the stocks.
  • Such companies have been subjected to increased scrutiny, and investors have lost billions of dollars on the stocks.
  • SEC de-registered the securities of nearly 50 Chinese-based companies and has filed 40 related fraud cases



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