Opinion: Why the audit disclosure feud needs compromise

Mar 6, 2014
China and US regulators are working on a deal, but if China wants regulatory equivalency it must first prove its intent to prosecute fraud, says accounting professor Paul Gillis
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On January 22 2014, an Administrative Law Judge of the US Securities and Exchange Commission (SEC) ordered the China member firms of the Big Four accounting firms (PwC, Deloitte, EY, and KPMG) banned from practice before the SEC for six months. The ban is the consequence of the accounting firms’ refusal to turn over audit working papers related to US-listed Chinese companies alleged to have committed fraud. The accounting firms said they were caught between a rock (US law compelling they turn the papers over) and a hard place (Chinese regulations that prohibited doing so), but the judge ruled that the firms had put themselves there. From his perspective, the accounting firms should have known that they would have to comply with US laws when they decided to accept US-listed clients.

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