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May 10, 2012

Deloitte defends Chinese member in Longtop probe

Deloitte has defended the actions of its Chinese member firm, claiming Deloitte Shanghai has done everything it can to assist authorities but is caught in the middle of a jurisdictional tug-of-war between the US and China.

The defence is in response to Deloitte Shanghai being formally charged by the US Securities and Exchange Commission (SEC) of ‘wilfully’ violating the Sarbanes-Oxley Act by failing to provide audit work papers.

Deloitte told International Accounting Bulletin its Chinese member firm provided documents requested by the SEC to the China Securities Regulatory Commission (CSRC) in the hope the Chinese regulator would pass it onto the SEC.

“Unfortunately, that has not happened. In 2011, the SEC requested the documents directly from Deloitte Shanghai, but because of China’s legal impediments, Deloitte Shanghai was prohibited from producing the documents directly to the SEC, resulting in the current 102(e) complaint against Deloitte Shanghai,” the Big Four firm said.

Deloitte warned this was not an isolated case and the dispute could have repercussions across the whole profession.

“China’s legal impediments apply to all accounting firms in China. If a diplomatic resolution is not reached, it is likely that all of the major accounting firms in China will find themselves having to choose between violating their own national laws or facing a similar 102(e) proceeding by the SEC,” the Big Four firm said.

Deloitte is due to appear in front of a US federal government administrative judge, which is an independent judicial officer who in most cases conducts hearings and rules on allegations of securities law violations initiated by the SEC.

If the SEC’s case against Deloitte China is successful, the firm could face a fine or be barred from practicing under SEC’s jurisdiction.

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