The Securities and Exchange Commission Friday imposed sanctions against four China-based accounting practices that refused to turn over documents related to investigations of potential fraud.
The four firms are Deloitte Touche Tohmatsu Certified Public Accountants Limited, Ernst & Young Hua Ming LLP, KPMG Huazhen (Special General Partnership), and PricewaterhouseCoopers Zhong Tian CPAs Limited Company.
Under their settlement with the SEC, the firms each agreed to pay $500,000 and admit that they didn’t produce documents until the SEC started proceedings against them in 2012. They agreed to the settlement without admitting or denying other findings in the SEC’s order.
In January 2014, after a 12-day hearing the previous summer, an administrative law judge issued an initial decision finding that the four firms refused to provide the SEC with workpapers and related documents connected with their audit work for nine China-based companies that had securities registered in the U.S.
Judge Cameron Elliot found that the firms willfully violated Section 106 of the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide workpapers to the SEC upon request. He suspended them for six months from auditing any U.S.-listed companies.
After the hearing, the SEC received multiple productions of workpapers from the firms with help from the China Securities Regulatory Commission. The four firms then asked the SEC to review the January 2014 initial decision. The six-month suspension was put on hold pending the firms’ appeal.
The SEC censure requires the firms “to perform specific steps to satisfy SEC requests for similar materials over the next four years.”
Andrew Ceresney, director of the SEC’s enforcement division, said: “As we repeatedly have stated throughout this litigation, obtaining an audit firm’s workpapers is critical to enforcement staff’s ability adequately to protect investors from the dangers of accounting fraud.”
Under the settlement, if any of the four firms fails to meet document demands, it could face an automatic six-month bar for certain audit work.
A proceeding against a fifth China-based accounting firm, Dahua CPA Ltd., is still pending.
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The SEC’s Securities Exchange Act of 1934 Release No. 74217, Accounting and Auditing Enforcement Release No. 3627, and Administrative Proceeding File Nos. 3 – 14872, 3 – 15116 (all dated February 6, 2015) are here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.