US regulator settles with Deloitte China for US$20 million on audit issues related to 12 mainland clients
- Deloitte said it self-reported the problems to the regulators, while the SEC said the accounting firm asked certain clients to select their own samples for testing
- The action underscores the need for the PCAOB to be able to inspect Chinese audit firms, said SEC chair Gary Gensler
The US regulator Securities Exchange Commission (SEC) has imposed a penalty of US$20 million on the Chinese unit of Deloitte to settle audit issues related to 12 US-listed mainland companies in 2018.
The settlement comes at a sensitive time as the US audit regulator’s inspectors are currently in Hong Kong, reviewing for the first time the work of PwC and KMPG related to their US-listed mainland-based clients.
Deloitte is not subject to the ongoing Public Company Accounting Oversight Board (PCAOB) inspection in Hong Kong, two sources at the firm said. They added that the audit problems settled on Friday came after the company’s Chinese unit, Deloitte Hua Yong, found the problems and self-reported to the US regulators.
“Deloitte Hua Yong has agreed a settlement with the US SEC, including the payment of a settlement sum, bringing closure to a self-reported matter relating to certain deficient procedures identified in 12 financial year 2018 PCAOB audits,” Deloitte said in a statement. It did not disclose the clients.
The SEC agreed to settle a charge with Deloitte’s China unit for failing to comply with fundamental US auditing requirements, with the accounting firm agreeing to pay a US$20 million penalty and conduct extensive remedial measures, the SEC statement said.
The SEC said Deloitte’s China unit had asked certain of its clients to select their own samples for testing and to prepare audit documentation.
