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Big Four China firms in settlement talks with SEC

The US Security and Exchange Commission (SEC) has granted an extension order to the court hearings on the six months ban prohibiting Big Four Chinese firms to provide services to US listed Chinese companies.

The extension was granted in an effort to allow the accounting networks and the SEC Division of Enforcement to find an out-of court settlement, according to a regulatory filling released on the SEC website.

In January, a US Securities and Exchange Commission (SEC) judge has ruled that all of the Big Four Chinese joint ventures as well as BDO former Chinese firm, DaHua, had violated the Sarbanes-Oxley Act, and that they should be banned from working for any US-listed Chinese companies for the next six months.

The Big Four had appealed the six months ban in February, arguing that the ruling had "misconstrued the operative legal standard which provides that only a 'willful refusal to comply' with an SEC request for audit work papers or other documentation constitute a violation of SOX".

The appeal was to be heard in June by five SEC administrative law judges who could uphold, overturn or modify the initial ruling.

However on 29 May, the Big Four Chinese firms and the SEC Division of Enforcement issued a joint motion requesting an extension of the hearings.

In their request they argued: "Following issuance of the Initial Decision on January 22, 2014, the Division and outside counsel for the Big Four Respondents have had a number of discussions, including three in-person meetings, regarding a potential settlement of this proceeding."

"No agreement in principle to a settlement of major terms has been reached. However, the parties believe that these discussions have materially progressed, and that continuing these discussions is worthwhile," the motion continued.

The motion states that although settlement discussions have not included DaHua, an out-of-court resolution with respect to the Big Four could affect proceedings regarding DaHua.

On Monday, The SEC published a regulatory filing granting the extension request and set the new hearing to 19 September.

However Peking University professor Paul Gillis told IAB: "I doubt the Big Four are involved in any meaningful settlement talks. There is no room for them to settle anything. The issue is between the United States and China, and needs to be settled government to government. And that will require a big concession on one side or the other."

"The delay in the SEC case is to give the governments some more time to try to work this out," he continued. "There is a big meeting in July at the annual Strategic and Economic Dialogue and that is the best chance for them to find a solution."

EY, PwC and Deloitte told IAB they had no further comment on this topic. KPMG was not available for comment at the time of publication.

Related articles:

SEC judge issues services ban on the Big Four China firms

Big Four appeal SEC ban

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