(Reuters) — The U.S. Securities and Exchange Commission on Thursday fined the Chinese subsidiary of Deloitte, one of the “big four” accounting firms, $20 million for allowing some clients, including foreign companies listed on U.S. exchanges, to perform their own audit work.
For several years, Deloitte’s Chinese subsidiary asked some clients to select their own samples for testing and to prepare documentation that gave the impression that Deloitte-China had tested the clients’ financial reports and internal controls, when there was no evidence that it had actually done so the. so, the SEC said.
Auditors are important gatekeepers in the financial markets, where issuers and investors alike rely on them to critically and independently review the issuers̵7; financial statements, identify any material misstatements in them, and sign off on them when they are free from material error.
“We find that Deloitte-China failed to meet professional audit requirements in many component audits of Chinese operations of US issuers and audits of Chinese companies listed on US exchanges,” said SEC Chairman Gary Gensler.
“Investors in U.S. markets should be protected — and have confidence in a company’s financial numbers — regardless of whether an issuer is foreign or domestic.”
The SEC’s regulatory actions underscore the need for the Public Company Accounting Board to be able to inspect Chinese accounting firms, Gensler said.
PCAOB inspections help identify weaknesses in companies’ quality control processes, which were at the center of the SEC’s regulatory action against Deloitte-China.
An agreement between China and the United States last month allows US regulators, for the first time, to inspect China-based audit firms that audit New York-listed companies, easing an audit dispute that threatened to delist more than 200 Chinese companies from US exchanges.
Deloitte self-reported the violations at its China branch to the PCAOB in 2019 when it became aware of them, an SEC official said.