The US Securities and Exchange Commission (SEC) has requested Chinese Big Four firms hand over documents related to the audits of Chinese companies listed in the US, according to the news agency Reuters.
The move is likely to intensify tensions between US and Chinese regulators who have been at a stand off over Chinese audit work.
In May, the SEC sought legal enforcement for Deloitte’s Chinese arm to hand over audit work papers and accused the firm of violating the Sarbanes-Oxley Act and the Securities Exchange Act of 1934.
However, Chinese law prohibits Chinese audit firms to hand over documentation to foreign authorities, which has placed Deloitte (and potentially other firms) in a precarious position.
Reuters said PwC’s Chinese firm confirmed it had received US requests to hand over Chinese audit papers.
It is clear that US authorities, namely the SEC and the audit watchdog PCAOB, are losing patience with the impasse.
If a solution is not found, it is conceivable US authorities could bar Chinese firms from auditing US-listed companies, which is likely to lead to a string of Chinese companies de-listing from US stock exchanges.
The SEC and the Big Four did not respond to International Accounting Bulletin approaches for comment.