U.S. watchdog warns on China audits

Reuters News
Posted: Oct 25, 2011 2:30 PM
U.S. watchdog warns on China audits

By Nanette Byrnes

(Reuters) - Any attempts by China to bar Big Four auditors from shipping summaries of Chinese audits out of that country for review in the United States or elsewhere would constitute "a long-arm interdiction" of the firms' internal work, the top U.S. audit industry watchdog said on Monday.

In a frank assessment of a dispute over inspecting audits of U.S.-listed Chinese companies, U.S. Public Company Accounting Oversight Board Chairman James Doty said talks between U.S. and Chinese officials had hit "new bumps in the road."

Chinese officials have put off meetings on the matter that had been scheduled since last summer, Doty said in a speech to the National Association of State Boards of Accountancy.

Citing news accounts of recent meetings between Chinese regulators and global audit firms, Doty said any Chinese moves to restrict the flow of audit work papers "would go well beyond keeping PCAOB inspectors out of China."

The PCAOB and SEC have been negotiating with their Chinese counterparts for several months over the issue of joint audit inspections. Recent auditing issues at U.S.-traded companies based in China have shone a spotlight on the issue.

Globalization has stretched the frontiers of auditing and weakened investor protection. Doty said.

As a result, he said, "U.S. markets and investors have been unfairly taken advantage of by those who want the benefits of American markets but not American rules."

Chinese regulators have asked the Chinese arms of the world's biggest audit firms to review their work on U.S.-listed Chinese companies and give details about the information they may have provided to overseas regulators, two sources told Reuters last week.

The unprecedented move followed a string of accounting scandals at U.S.-listed Chinese companies. It may throw a wrench into Chinese expansion efforts by the Big Four auditors: Deloitte, KPMG, PricewaterhouseCoopers and Ernst & Young LLP.

(Reporting by Nanette Byrnes in Chapel Hill, NC; additional reporting by Dena Aubin in New York; editing by Andre Grenon)