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US takes accounting firms to court

By Cong Mu (Global Times)

10:04, December 10, 2012

The China-based affiliates of five accounting firms, including the Big Four, face the possibility of losing both their right to practice and their registration with the US accountancy regulator, a prominent accounting expert in Beijing said Saturday after the US Securities and Exchange Commission (SEC) charged the affiliates with breaking US securities laws.

The SEC has brought the lawsuits against the accounting firms to a US administrative law judge, accusing the accountants of violating the US Securities Exchange Act and the Sarbanes-Oxley Act by refusing to produce audit work papers to the SEC during probes into possible accounting frauds, the US stock market watchdog said in a statement on December 3.

"The judge will have a wide range of punishments available, but the most meaningful would be to revoke the practice rights of the firms," Paul Gillis, an accounting professor at Peking University, wrote on his China Accounting Blog Saturday.

The defendants in the SEC case, who audit the books for US-listed Chinese companies, are Beijing-based BDO China Dahua, Ernst & Young Hua Ming and KPMG Huazhen, as well as Shanghai-based Deloitte Touche Tohmatsu Certified Public Accountants and PricewaterhouseCoopers Zhong Tian, the SEC document said.

Since 2010, 42 class action lawsuits in the US have targeted Chinese reverse mergers, the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research in Boston said in its 2011 year review. A number of the companies charged were audited by the SEC defendants.

"All the lawyers I talk to seem to think the case against the firms is a slam dunk for the (US) government," wrote Gillis, who is also an advisor to the Public Company Accounting Oversight Board (PCAOB), the US accountancy regulator.

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