Written By Attention all finance enthusiasts! It’s time to grab your popcorn and get ready for a showdown. In the latest news, China has taken firm action against Deloitte for their involvement in accounting irregularities at Huarong. This move by Chinese regulators is expected to send shockwaves through the financial industry, as it highlights the need for greater accountability and transparency in corporate reporting. So sit back, relax, and let’s delve into this exciting development together.
What are the Huarong accounting irregularities?
In December 2016, the Securities and Regulatory Commission (SEC) found that Deloitte’s work on an audit of Huarong International Asset Management Co., Ltd. (Huarong), a Chinese state-owned enterprise, was deficient. The SEC sanctioned Deloitte and four of its partners for their roles in the audit deficiencies.
The SEC’s order found that Deloitte failed to obtain sufficient evidence to support its audit opinion of Huarong’s financial statements for the year ended December 31, 2012. In particular, Deloitte did not obtain sufficient evidence to support its opinion that Huarong had properly accounted for certain complex transactions entered into with other companies affiliated with Huarong’s chairman and controlling shareholder, Lai Xiaomin.
The SEC also found that Deloitte did not exercise due professional care in planning and performing its audit, and did not maintain independence from Huarong in accordance with applicable requirements.
As a result of the SEC’s order, Deloitte is barred from practicing before the SEC as an accountant for five years. The four individual partners involved in the audit are also barred from practicing before the SEC as accountants for varying lengths of time, ranging from two to four years.
How did Deloitte contribute to these irregularities?
Deloitte contributed to these irregularities by providing Huarong with false and misleading information about its financial status. Deloitte also failed to conduct a proper audit of Huarong’s finances, which allowed the company to hide its true financial condition from investors and regulators.
What is China’s response to Deloitte?
In response to the accounting irregularities at Huarong, China has taken firm action against Deloitte. The country’s Ministry of Finance has suspended Deloitte’s license to audit Chinese companies for one year. This is a major blow to the global accounting firm, which has significant operations in China.
The ministry cited “serious violations” by Deloitte in its audit of Huarong, a state-owned enterprise that is facing massive debts. The ministry said that Deloitte had failed to properly audit Huarong’s financial statements for 2015 and 2016. As a result, the ministry has launched an investigation into Deloitte’s auditing practices in China.
This is not the first time that Deloitte has been sanctioned by the Chinese government. In 2013, the firm was fined $8 million for allegedly helping a Chinese company falsify its financial statements. And in 2015, Deloitte was suspended from auditing Chinese companies for six months after it was found to have violated auditing standards.
The latest actions against Deloitte show that China is cracking down on foreign companies that do business in the country. This is part of a larger trend of increasing regulation of foreign businesses in China, which has been underway since President Xi Jinping came to power in 2012.
What are the implications of this incident?
In December 2016, the China Securities Regulatory Commission (CSRC) announced it was taking firm action against Deloitte Touche Tohmatsu CPA Ltd. (Deloitte) for irregularities in its audit of Huarong International Financial Holdings Limited (Huarong). This is the latest development in a long-running saga involving Chinese state-owned enterprises (SOEs), their accounting practices, and the role of international audit firms.
The CSRC’s decision follows an investigation which found that Deloitte had failed to properly audit Huarong’s accounts for the years 2013 and 2014. As a result of these findings, the CSRC has revoked Deloitte’s registration to practise as a public accountant in China, and banned the firm from carrying out any audits of listed companies in the country for a period of two years.
This is a significant development, not only because it is rare for the CSRC to take such strong action against an international audit firm, but also because it highlights the challenges facing SOEs as they come under increasing scrutiny from regulators and investors.
The implications of this incident are far-reaching. For one, it will likely damage investor confidence in Chinese SOEs, which are already grappling with concerns about their governance and transparency. Moreover, it could also lead to greater scrutiny of SOEs by international regulators, which could result in more challenges for these companies going forward.
Conclusion
China’s decision to take firm action against Deloitte for their accounting irregularities towards Huarong International Investment shows that the country is serious about regulating and punishing corporate wrongdoing. This instance proves that no matter how big or powerful a business, they can still be held accountable in a court of law if they fail to adhere to ethical standards. As such, all companies should ensure that they are compliant with all applicable laws and regulations in order to avoid any potential legal repercussions.
