09.05.2012
By Simon Miller
The Securities and Exchange Commission has charged Deloitte & Touche's Shaghai subsidiary for violating US securities laws.
In a notice today (09.05.2012), the regulator said it was taking an enforcement action against Deloitte Touche Tohmatsu CPA (D&T Shanghai) for its refusal to provide the SEC with audit work papers related to a China-based company under investigation for potential accounting fraud against US investors.
According to the SEC’s order, the agency had spent two years trying to obtain documents related to D&T Shanghai's work for the company which issues US securities registered with the SEC.
The firm is charged with violating the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide audit work papers concerning US issuers to the SEC upon request.
D&T Shanghai failed to provide the documents, citing Chinese law as the reason for its refusal.
“As a voluntarily registered US public accounting firm, D&T Shanghai cannot benefit from the financial and reputational rewards that come with auditing US issuers without also meeting its U.S. legal obligations,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Foreign firms auditing U.S. issuers should not be permitted to shield themselves from regulatory scrutiny to the detriment of US investors.”
Scott Friestad, associate director of the SEC’s Division of Enforcement, added, “Without access to work papers of foreign public accounting firms, our investigators are unable to test the quality of the underlying audits and fulfill our responsibilities to investors.”
This is the first time the SEC has brought an enforcement action against a foreign audit firm failing to comply with a Section 106 request.
In the SEC’s order, the Enforcement Division alleges that D&T Shanghai willfully violated the Sarbanes-Oxley Act and the Securities Exchange Act of 1934 by failing to provide the SEC with the audit work papers. The administrative proceeding will be assigned to an Administrative Law Judge at the agency. The judge would determine the appropriate remedial sanctions if the judge finds in favor of the SEC staff.
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