The Securities and Futures Commission (SFC)
has brought Ernst & Young Hong Kong (E&Y) to court, after
the firm failed to hand over audit documents relating to former
client Standard Water.
E&Y resigned as Beijing-based Standard
Water’s auditor in March 2010, after which its client withdrew its
application to become a listed company on the Stock Exchange of
Hong Kong.
Hong Kong’s securities regulator has now
requested the Big Four firm produce Standard Water’s accounting
records, currently held by affiliate firm E&Y Hua Ming.
However E&Y has claimed it cannot
disclosure the requested information as it may be protected under
Chinese secrecy laws.
In a statement the Big Four firm said it
understood its obligations to SFC and that it is endeavouring to
“fully comply, while also meeting our compliance obligations with
mainland China’s laws and regulations.”
According to the SFC, under Chinese law all
Hong Kong accountants are required to obtain the consent of
mainland authorities before handing over any accounting records to
regulators.
Asked whether or not E&Y had the
permission to do so – and therefore comply with Chinese secrecy
laws – a spokesperson for the Big Four firm declined to comment,
adding only: “it is really about the obligations between Hong Kong
and the PRC.”
The SFC has maintained that accounting records
can still be produced with the cooperation of the relevant mainland
China authority.
The regulator said it has sought this
cooperation, although E&Y Hua Ming also failed to produce the
records to Chinese authorities.
According to the SFC, Hong Kong’s Court of
First Instance can order E&Y to come to terms with its request
if the Big Four firm does not have any reasonable excuse for not
complying.
