Accounting firms can no longer hide behind China’s skirts when U.S. regulators demand paperwork on suspected fraudsters. Yet China can still protect beancounters and their clients if it chooses. This unsatisfactory compromise leaves investors only a little better off.
Under a settlement reached on Feb. 6, Chinese affiliates of Deloitte, KPMG, Ernst & Young and PricewaterhouseCoopers will pay a meagre $500,000 each for refusing to give the U.S. Securities and Exchanges Commision documents the watchdog demanded before 2012. A six-month ban on auditing U.S. companies, which would have played havoc with New York-listed Chinese companies like Alibaba and Baidu, has been deferred for four years – provided the auditors are more helpful in future.
The new process is a triumph of red tape. The U.S. watchdog will now take suspicions of misbehaviour straight to its Chinese counterpart, the China Securities Regulatory Commission. After a mind-numbing cascade of notifications and letters between the regulators and auditors, documents will hopefully be handed over, albeit with politically sensitive bits struck out. Auditors must also supply a “withholding log” of what they keep back, along with details on how they decided what to put on it.
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