China quizzes audit giants on foreign regulator contact

Wed Oct 19, 2011 1:33pm EDT
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By Dena Aubin and Rachel Armstrong

NEW YORK/SINGAPORE (Reuters) - China's financial regulators have asked the world's biggest audit firms to urgently review their work on U.S.-listed Chinese companies and give details on information they may have provided to overseas regulators, two sources told Reuters.

The unprecedented move, following a string of accounting scandals at U.S.-listed Chinese companies, is set to ratchet up tensions between the financial regulators of America and China.

The request, sources said, is seen as a direct response to the move by the U.S. regulators in the case of scandal-hit Longtop Financial Technologies Ltd, and to ensure that firms do not succumb to pressure to hand over documents to regulators outside of China.

Last month the U.S. Securities and Exchange Commission (SEC) asked an American court to enforce a subpoena it sent to Deloitte Touche Tohmatsu's China practice for documents from its audit of Longtop.

Two sources from the audit industry told Reuters that the Ministry of Finance and China Securities Regulatory Commission (CSRC) met last week with the so-called 'Big Four' audit firms -- KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte -- along with two smaller firms.

The firms were requested by the government to conduct an urgent review of all audits they had done on U.S.-listed Chinese firms in 2010 along with work on U.S. initial public offerings by Chinese companies.

They have been asked to report back by the end of this week with information on whether audit work papers or other client information were given to overseas regulators or any of their overseas practices.

One source, who can't be named due to the sensitive nature of the meeting, said the Chinese authorities emphasized to the firms their rules on confidentiality.   Continued...