UPDATE 1-Audit firm EY appealing HK court ruling that says China law does not protect papers
* EY says has already handed over papers located in China to Beijing regulator
* Its preference is for China regulator to hand papers to HK's Securities and Futures Commission
* Audit company says has agreed to give records located in HK to SFC (Adds quote, context)
HONG KONG, June 20 (Reuters) - Audit firm EY said on Friday it would appeal a Hong Kong court's ruling that Chinese law does not protect the working papers of mainland companies and suggested the regulator in Beijing deal directly with its counterpart in the former British colony.
The audit firm said it would give relevant records located in Hong Kong to Hong Kong's Securities and Futures Commission (SFC). It added that it had already turned over working papers on former client Standard Water that were located in China to the China Securities Regulatory Commission (CSRC), and that EY's preference was for the CSRC to give those papers to the SFC.
EY's statement comes as regulators globally are pushing for greater access to the records of Chinese companies listed outside of their home territory as part of investigations into irregularities and possible accounting scandals.
EY is appealing the Hong Kong court decision that "there is no PRC rule or regulation that would prevent EY Hua Ming from sending materials directly to EYHK for production to the SFC," it said in an emailed statement to Reuters, referring to its former joint venture in China.
"EY Hua Ming has produced its working papers to the China Securities Regulatory Commission (CSRC). EY Hua Ming's and EYHK's preference is for the working papers now to be produced by the CSRC to the SFC," EY said.
The SFC and CSRC declined to comment when contacted by Reuters.
A Hong Kong court in May gave EY 28 days to hand over documents related to former Chinese client Standard Water to the SFC. EY was told it must explain why it resigned as auditor of municipal water services provider in 2010 and provide a list of all staff involved with the company's scrapped Hong Kong IPO plan.
Access to the audit records of mainland companies is a sensitive issue for China, which sees itself as capable of supervising its own companies and auditors, and sees such requests as impinging on its sovereignty.
That conflicts with the United States and Hong Kong view that their regulators need to be able to investigate all companies accessing their capital markets.
A string of accounting scandals at U.S.-listed Chinese companies in recent years lead a U.S. judge to rule that the Chinese affiliates of the 'Big Four' global accounting firms should be suspended from practising in the United States for six months for failing to comply with Securities and Exchange Commission document requests.
The decision is currently up for appeal.
EY, along with PricewaterhouseCoopers, Deloitte Touche Tohmatsu and KPMG, review the books of most of the world's largest corporations through networks of legally separate, nationally based audit firms.
The 'Big Four' accounting firms say handing over paperwork from their Chinese affiliates, which audit Chinese companies listed overseas as well as multinationals, requires Beijing's permission.
In May, in the week leading up to the Hong Kong ruling, China's Ministry of Finance reiterated the country's secrecy laws and said that audit firms may not pass information to overseas regulators or exchanges. It further said that all audit work in China would soon have to be done by mainland firms rather than foreign auditors operating under temporary licenses.
Hong Kong is a special administrative region of China but operates under separate legal and regulatory systems. Chinese companies make up more than half of the market capitalization of the Hong Kong Stock Exchange. (Reporting by Clare Baldwin; Editing by Anne Marie Roantree and Matt Driskill)