SEC charges Deloitte China | China Accounting Blog | Paul Gillis

SEC charges Deloitte China

The SEC today commenced administrative proceedings against Deloitte Touche Tohmatsu Certified Public Accountants, which is the member firm of Deloitte in China for its willful failure to provide audit working papers to the SEC. 

The SEC refers to the firm as D&T Shanghai, which has caused great confusion. This is the member firm that operates all of Deloitte’s offices in China. It was organized in Shanghai and all of the other offices are branches or representative offices of this company.

The SEC had earlier subpoenaed Deloitte’s working papers related to Longtop. Deloitte has refused; saying that to do so would violate China’s state secrets laws and lead to the dissolution of the firm and its partners jailed for life. Enforcement of the subpoena now lies in federal court, and the SEC calls this a “separate matter” in its announcement today. Deloitte filed its response a few weeks ago and the judge has ordered the SEC to respond late this month.  

The administrative proceedings are a separate action that could lead to Deloitte being punished for violating the Sarbanes/Oxley Rules that compel auditors to supply working papers. The SEC says the judge will determine the appropriate remedial sanctions if the judge finds in favor of the SEC staff. 

I am just speculating, but it seems those sanctions could include suspending Deloitte China’s right to practice before the SEC. Deloitte audits the largest number of U.S. listed Chinese companies, so that would leave many companies without an auditor.

The last time the SEC threw the book at Deloitte, it knocked off the track the PCAOB’s negotiations with China over access to conduct inspections. I am worried that this action might have the same effect, derailing the breakthrough that James Doty made in Beijing last week. 

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