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5 years ago
UPDATE 2-US SEC delays court action seeking Deloitte China audit papers
July 18, 2012 / 3:11 PM / 5 years ago

UPDATE 2-US SEC delays court action seeking Deloitte China audit papers

4 Min Read

* SEC seeks six-month extension, in talks with Chinese
regulators
    * SEC seeking audit work papers for China-based companies
    * SEC seeking Deloitte papers in connection with Longtop


    By Aruna Viswanatha and Dena Aubin
    July 18 (Reuters) - The U.S. Securities and Exchange
Commission on Wednesday sought to delay its legal battle with a
Chinese unit of accounting firm Deloitte Touche Tohmatsu
 over audit documents, citing ongoing negotiations with
Chinese regulators. 
    In a filing with a U.S. federal court, the SEC said it
wanted a six-month stay so it could try to work out an
arrangement with Chinese regulators to get audit documents.
    The SEC in September had asked the court to force Deloitte
to produce records related to possible accounting fraud at
Longtop Financial Technologies Ltd, but Deloitte has resisted,
citing Chinese secrecy laws.
    Longtop, a China-based company that was listed in the United
States, was charged in November with failing to file accurate
financial reports.
    The SEC has also been negotiating with the China Securities
Regulatory Commission (CSRC) on cross-border cooperation,
including access to documents. In its court filing on Wednesday,
it said no agreement has been reached but talks continue.  
    The SEC's court action on Wednesday could signal progress in
the talks, said Paul Gillis, an accounting professor at Peking
University in Beijing who has closely followed the matter.
    "I think it hints that a breakthrough is imminent," he said.
    
    DELISTINGS FEARED
    Concerns have grown that if no diplomatic solution is found,
Chinese auditors could be denied the right to practice before
the SEC, leaving hundreds of U.S.-listed Chinese companies
without auditors and resulting in delisting.
    The SEC has been investigating dozens of China-based
companies listed in the United States for accounting
irregularities. Those inquiries have stalled amid difficulties
in obtaining documents from Chinese auditing firms. 
    Auditors have said they could be jailed for violating
China's state secrets laws if they turn over papers to the SEC. 
    In July 2012, the SEC said, Chairman Mary Schapiro met with
the chairman of the CSRC and discussed developing a mechanism
for the SEC to obtain audit work papers and other documents from
China-based auditors.
    "If these negotiations can develop a viable alternative
means by which the SEC can obtain the audit work papers and
other documents...it could have a significant impact on the
appropriate resolution of this case," the SEC said in its
filing. 
    Deloitte's China unit, Deloitte Touche Tohmatsu CPA Ltd, did
not object to the delay, the SEC said. 
    It is unclear how this filing will impact a separate legal
action pending against Deloitte in SEC administrative court.
That action also seeks work papers in connection with an SEC
investigation into an undisclosed company.
    In that administrative action against Deloitte, the SEC said
sanctions could include censure or revoking the firm's ability
to practice before the commission.
    A source familiar with the matter told Reuters last month
that the SEC has asked the Chinese arms of the other Big Four
auditors - Ernst & Young, PwC, and KPMG - for audit papers as
well.

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