* EY says has already handed over papers located in China to
* 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)
By Clare Baldwin
HONG KONG, June 20 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
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
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
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