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A Foreign Affair Close to Home:

In Accounting & Finances, Business, Culture, Education, Taxes on July 9, 2012 by Sufen Wang Tagged: , , , , ,

U.S. SEC Takes Action against Shanghai-Based Accounting Firm 

The world got a good look at American business’ bad side from 2001-2002, and boy, was it ugly. The Enron (now synonymous with corruption), Worldcom, and Tyco scandals made it clear that big corporations and accounting firms needed to bring their ethic sup to code. But first, that code had to be brought up to date.

That’s exactly what the Sarbanes-Oxley Act of 2002 did: it established new and improved standards for U.S. business practices. Companies could no longer pretend they didn’t know something wrong was going on and they would be held accountable for their “oversights.”

Or at least that’s what was supposed to happen. Welcome to 2012, where several Chinese companies listed on the U.S. stock exchange appear to have slipped-up in their accounting.  And the foreign accounting firms that audit these companies – in other words, the people who should be reporting any suspicious financial activity – have been less than forthcoming with the U.S. Securities and Exchange Commission (SEC).  

For example, a Shanghai-based firm, Deloitte Touche Tohmatsu, has been withholding some very important papers from the SEC. One of the firm’s clients, a Chinese company that trades in the U.S., is under investigation. The Sarbanes-Oxley Act says that the accounting firm must provide the SEC with any documents relating to this suspected, U.S.-based company. 

That’s nice, but Deloitte said they gave the documents to the Chinese Securities Regulatory Authority (CSRA), and it was up to the SEC and CSRA to figure things out. That didn’t happen and when the SEC asked for the work papers again, Deloitte said nope. Accordingly, the SEC is charging Deloitte with violating the Sarbanes-Oxley Act provision.

This administrative action comes at an inopportune time for the Public Company Accounting Oversight Board (PCAOB), an agency created by the Act specifically to oversee U.S. accounting firms in their auditing duties, as well as the auditors of any U.S. listed companies – i.e. Deloitte Touche Tohmatsu. Chinese officials had not previously allowed inspectors this crucial access, but the PCAOB was on the very brink of working out an agreement.

That possibility of observing audit inspections in China could be in jeopardy due to the SEC’s aggressive move. Now the million– and what could end up as the billion – dollar question is what should the U.S.government do? What can the government do? Should U.S. law be imposed onto the Chinese? What about accounting laws in China? Should the U.S. be following their laws as well? It’s an international nightmare with no easy answers.  

 

On the Money,

Sufen Wang

Wang Solutions

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