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Big Four China units appeal audit ban

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17th Feb 2014
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Chinese affiliates of the Big Four accounting firms have appealed a US judge ruling suspending them from auditing US-traded clients for six months.

This is the latest development in a long-running fued over how much help US regulators can expect in investigating wrongdoing by China-based companies.

Last month an SEC administrative law judge suspended the Big Four over their refusal to hand over documents about some of their Chinese audit clients which are listed in the US. The reasons were detailed in a 112-page PDF ruling.

The SEC had requested the documents to aid in its investigation of more than 130 US-traded Chinese companies that have encountered questions about their accounting or disclosure in recent years.

Judge Cameron Elliot said that the firms “willfully violated” US law and showed “gall” in arguing that they shouldn't be forced to do so.

The firms have argued that a suspension could leave US-traded Chinese companies without an auditor, which would complicate the audits of many multinational companies.

According to the firms Chinese law treats such documents in line with state secrets and they could be harshly penalised if they cooperate with the SEC without Chinese government approval. They added that the effects of a suspension are so damaging that the commission itself should weigh in on the matter with a full review.

The SEC could uphold, overturn or modify the judge's ruling, or send it back to him for further proceedings.

The commission enforcement division also asked its members to review the ruling and whether the firms should be suspended for a longer period or barred.

Companies can't trade on US exchanges or sell securities in the US without audited financial statements.

The appeal will be heard by the five members of the SEC. In the meantime, the legal proceedings are expected to take a while and the firms said they can and will continue to serve all their clients without interruption.

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