与中国审计达成协议 – 雷博国际会计合伙人Jean Kester的文章被全球会计联盟引用
A settlement between the Securities and Exchange Commission in the United States and China affiliates of the Big Four firms has been welcomed as a breakthrough. Accountants have avoided an SEC ban on auditing U.S.-listed companies but, as A Plus reports, the SEC order could present challenges to the future of cross-border cooperation.
Most accountants – as well as company executives and investors – welcomed news of a legal settlement between the regulator in the United States and the China affiliates of the Big Four firms resolving a long-running dispute over access to audit working papers related to U.S.-listed Chinese companies.
After all, it seemed that each party obtained what they wanted: the Securities and Exchange Commission will be able to check audit working papers, the Big Four firms in China keep their clients, and shareholders should gain more transparency in evaluating the companies’ performance.
Legal experts have described the settlement as a balanced outcome that benefits all major parties. “The winners are the four accounting firms, China-based companies that use these firms and their investors,” says Jacob S. Frenkel, Chair of the Securities Enforcement, White-collar Crime and Government Investigations Practice at Shulman, Rogers, Gandal, Pordy & Ecker, a law firm in the Washington, D.C. suburb of Potomac, Maryland.
The settlement, announced in Washington D.C. on 6 February 2015, appears to resolve an action brought by the SEC after the four firms had refused to provide the commission with documents related to their audit work for nine China-based companies with securities registered in the U.S., violating the Sarbanes-Oxley Act.
The firms refused to comply on the grounds that broadly worded Chinese laws and rules covering “state secrets” prohibited transfer of the requested documents.
Under the terms of the SEC order issued on 6 February, the commission will make requests for documentation to its Mainland counterpart, the China Securities Regulatory Commission, which will provide the papers. “There is a mechanism now for attempting to resolve disputes,” says Frenkel, who is a former senior counsel in the SEC’s enforcement division.
SEC enforcement staffers see access to audit documentation as vital to their mission. “Obtaining a firm’s work papers is critical to [our] enforcement staff’s ability adequately to protect investors from the dangers of accounting fraud,” Andrew Ceresney, Director of the SEC’s enforcement division, said in a statement issued to announce the settlement.
The SEC hailed the CSRC deal as a turning point, noting that existing international sharing mechanisms, such as the International Organization of Securities Commissions Multilateral Memorandum of Understanding, can be a model. It sets out general principles regarding areas such as mutual assistance and the exchange of information.
According to the SEC order, the China-based affiliates of the Big Four firms will submit the documents requested by SEC to the CSRC, but it is not specified in the order how audit documents deemed to be containing state secrets will be dealt with thereafter.
Some experts expect the Chinese agency to be cooperative in most cases. “I believe it would take a very real and significant state secret assertion for this newly established framework not to result in production of audit materials to the SEC,” says Jason Flemmons, Senior Managing Director of Forensic Accounting and Advisory Services at FTI Consulting in Washington, D.C., and an American Institute of CPAs member.
Paul Gillis, Professor of Practice at Peking University’s Guanghua School of Management, expects cooperation to be patchy. “I think China will speed the transfer of documents when an important state interest is not at play,” he says, although he adds that information concerning sensitive materials or companies might be shared more reluctantly.
Other observers see a need on both sides for balancing interests that are not always in alignment. “There is an obvious conflict when the U.S. has a desire to receive information and China has desire to protect it,” says Yodi S. Hailemariam, Discovery Counsel with the McDermott Will & Emery law firm in Washington.
For their part, the Big Four firms concerned – Deloitte Touche Tohmatsu, Ernst & Young Hua Ming, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian – issued a joint statement on 6 February 2015 welcoming the settlement.
“We are pleased to have reached a settlement in the proceeding related to the production of Chinese audit work papers to the U.S. SEC,” the firms said in their statement. “The firms’ ability to continue to serve all their respective clients is not affected by this settlement.”
The settlement resolves – at least temporarily – an administrative procedure brought by the SEC in December 2012 alleging that each of the firms “wilfully refused” to provide their audit work papers and other documents. In July 2013 Administrative Law Judge Cameron Elliot censured the four firms and barred them from appearing or practising before the commission for six months.
Banning the firms from auditing listed companies might have unintended consequences. “The six-month bar ordered by the judge would have impacted U.S. issuers that are entirely China-based as well as U.S. multinational issuers with operations in China,” says Flemmons at FTI, a former SEC deputy chief accountant. “These companies would have had to retain a non-Big-Four auditing firm to conduct the required audit and review work.”
The ban was stayed while the firms appealed to the SEC. In a post-settlement note to clients on 12 February, EY’s lawyers argued that the accounting firm did not “wilfully refuse” to produce the relevant documents as the SEC had argued. EY was “directly prohibited from doing so by Chinese law and regulators,” wrote Richard A. Martin, a Securities Litigation, Investigations and Enforcement Partner with the Orrick, Herrington & Sutcliffe law firm, which represented the accounting firm.
The settlement was reached during the appeal filed by the Big Four. With the current proceedings against them stayed, the Big Four are required to each accept a censure, pay a US$500,000 fine and admit that they did not produce the required documents before the SEC instituted proceedings against them in 2012.
They also must perform specific steps to satisfy SEC requests over the next four years – or face a restart of proceedings. According to the order, the SEC’s enforcement division will first discuss the document request with the relevant firm’s external counsel and consolidates follow-up inquiries with the CSRC. If the firm concludes that the documents cannot be released for fear of violation of Chinese law (or any relevant U.S. statute) the firm must describe the issues on a withholding log.
Looking to the Future
Chinese non-Big-Four firms watched the proceedings with interest, cautioning that the settlement is a relief. “As we understand it, this is a temporary solution until the U.S. and Chinese regulators can find a meaningful permanent reconciliation of the differences between Chinese laws and U.S. listed entity rules and regulations,” says Jean Kester, a Partner with LehmanBrown International Accountants in Beijing.
A permanent answer could require more communication and cooperation, argues Roy Lo, Hong Kong Managing Partner of ShineWing (HK) CPA and a member of the Hong Kong Institute of CPAs. “I believe the settlement is positive in encouraging the access to audit work papers in China [towards] achieving the completion of audit work with a good balance of investors’ interests and confidentiality asserted by listed companies.”
Most observers, even those who support the settlement, expect future disputes to be inevitable. The SEC pursued 40 percent more financial reporting cases last year than in 2013. “Our renewed focus on financial reporting and auditing fraud is also starting to bear fruit,” SEC Chairwoman Mary Jo White told staff last month. “We also remain closely focused on gatekeepers [such as] auditors.”
Frenkel at Shulman Rogers believes non-U.S. auditing firms are insufficiently aware of how to correctly answer initial queries from regulators, exacerbating disputes. “A significant problem is the lack of sophistication and experience in responding to inquiries and investigations by the SEC,” he says.
Differences among regulators about aspects of an investigation could also contribute to miscommunication. “What the CSRC deems to be relevant could be less than the PCAOB’s to meet its mission to protect the interests of investors,” argues Steven M. Mintz, Professor of Accounting at the California Polytechnic State University, San Luis Obispo’s Orfalea College of Business.
One possible solution would be an international agreement to create uniform regulations for disclosure. “The only hope for a better solution would be if the international auditing community would come together and issue guidelines for inspections of global firms that audit companies listed on foreign exchanges,” suggests Mintz.
In the absence of such an agreement, corporate governance advocates urge greater vigilance and cooperation. “CPAs collect and present the financial information that financial analysts use to measure companies’ performance,” observes John Besant-Jones, Founder of Houston-based Red Flags Consulting and a former Chinese University of Hong Kong researcher into Mainland accounting practices. “They need to work together to identify fraud.”