American, Singapore companies gain business as accountant
inspections begin
Some China-listed companies
have switched to auditors in the U.S. and Singapore amid pressure to open their
books to American regulators. © Getty Images
ECHO WONG AND KENJI
KAWASE, Nikkei staff writersMay
16, 2023 12:14 JST
HONG KONG --
More than a dozen U.S.-listed Chinese companies have switched from auditors in
their home country to ones in the U.S. and Singapore since 2022, reducing the
risk they could be thrown off American exchanges, a Nikkei Asia analysis shows.
Under a 2020 law called the Holding
Foreign Companies Accountable Act (HFCAA), Chinese companies can be delisted if
their auditors fail to comply with U.S. accounting standards. Those
requirements include allowing inspections of auditors by the Public Company
Accounting Oversight Board (PCAOB).
Beijing resisted the U.S. effort
until last year, when it began to allow the PCAOB to inspect Chinese auditors.
Last Wednesday, the regulator released the first results from its inquiries in
China and Hong Kong, saying it had found "unacceptable" flaws at two
auditors, KPMG Huazhen and PwC Hong Kong.
As the HFCAA was being implemented
and strengthened by additional legislation, some U.S.-listed Chinese companies
moved to avoid the delisting threat by switching their auditing work to
companies in the U.S. and Singapore, which has not fought PCAOB inspections.
The U.S. Securities and Exchange has
identified 174 U.S.-listed Chinese companies with auditors who required
inspection. Of these, 24 have changed auditors since 2022, according to a
Nikkei analysis of corporate filings, with 15 switching from companies in China
or Hong Kong to ones in the U.S. or Singapore.
Legend Biotech, a developer of commercial-stage
biotech medicines, told Nikkei Asia that concerns about the HFCAA prompted it
to shift its auditing work from Ernst & Young Hua Ming in Shanghai to an
E&Y office in New Jersey in 2022.
"When this law went into
effect, we began to transition [from] a China-based accounting company to a
PCAOB-registered accounting company based in the U.S," Tina Carter,
corporate communications lead at Legend Biotech, said last Friday. "That
process is now complete."
ACM Research switched its accounting
work to Armanino in San Ramon, California, from BDO China Shu Lun Pan in
Shenzhen, which had served the chip material supplier since 2015. The company
said it made the move so it would "no longer be subject to the related
delisting guidelines of the HFCAA."
Singaporean auditors have emerged as
major beneficiaries of the U.S. pressure.
Nasdaq-listed Fangdd Network, an
online real estate brokerage, said in its annual report that on July 25, 2022,
it switched to Audit Alliance of Singapore from KPMG Huazhen -- one of the
companies criticized by the PCAOB last week. The company's report did not give
a reason for the change.
Melco Resorts & Entertainment
and Studio City International Holdings, listed arms of Macao casino tycoon
Lawrence Ho, switched from an E&Y office in Hong Kong to one in Singapore.
In their annual reports, both companies noted that E&Y Singapore "is
not a PCAOB-identified firm."
Melco Resorts &
Entertainment and Studio City International Holdings switched auditors from an
E&Y office in Hong Kong to one in Singapore. © Getty Images
Mercurity
Fintech Holdings said it switched from auditor Shanghai Perfect to Onestop
Assurance PAC of Singapore, noting that the latter is registered with the PCAOB
and has been inspected by the PCAOB "on a regular basis."
The
PCAOB last Wednesday released the inspection results for KPMG Huazhen and PwC
Hong Kong, saying it found flaws in seven audits by the companies.
KPMG
Huazhen said in a statement that it "acknowledges the findings of the
PCAOB following its inspection." It did not address a Nikkei Asia question
about its dismissal by Fangdd.
PwC
said in a statement that it was "working with the PCAOB to address the
issues."
KPMG
Huazhen and PwC Hong Kong audited 40% of U.S.-listed Chinese stocks by market
capitalization. Erica Williams, PCAOB chair, said its inspectors "are on
track to hit 99% of the total market share by the end of this year."
In
March, China's Ministry of Finance fined Deloitte and suspended its Beijing
office for three months, citing "serious audit deficiencies" in its
work with China Huarong Asset Management, one of the largest bad-debt managers
in the mainland.
Nana
Li, head of Asia Pacific sustainability and stewardship at Impax Asset
Management, said, "It will now be very difficult for foreign accounting
companies (i.e., the Big Four) to keep many of their clients in China despite
their long-term on-shore operations in this market."
U.S.
SEC fines Deloitte's China affiliate $20m for audit violation
Regulator accuses auditor of allowing some clients to perform
own reviews
September 30, 2022 10:40 JST
NEW YORK
(Reuters) -- The U.S. Securities and Exchange Commission on Thursday fined the
Chinese affiliate of Deloitte, one of the "Big Four" accounting
companies, $20 million for letting some clients, including foreign companies
listed on U.S. exchanges, conduct their own audit work.
Over multiple years, Deloitte's
Chinese affiliate asked some clients to select their own samples for testing
and to prepare documentation that gave the appearance that Deloitte-China had
tested the clients' financial statements and internal controls when there was
no evidence it had in fact done so, the SEC said.
Auditors are essential gatekeepers
in the financial markets, with both issuers and investors relying on them to
critically and independently examine issuers' financial statements, identify
any material misstatements in them, and sign off on them when they are free of
material errors.
"We find that Deloitte-China
fell woefully short of professional auditing requirements in numerous component
audits of Chinese operations of U.S. issuers and audits of Chinese companies
listed on U.S. exchanges," said SEC Chair Gary Gensler.
"Investors in U.S. markets
should be protected -- and have trust in a company's financial numbers --
regardless of whether an issuer is foreign or domestic."
The SEC's enforcement action
underscores the need for the Public Company Accounting Oversight Board (PCAOB)
to be able to inspect Chinese audit companies, Gensler said.
PCAOB inspections help identify
weaknesses in companies' quality control processes, which were at the center of
the SEC enforcement action against Deloitte-China.
A China-U.S. agreement last month
allows U.S. regulators, for the first time, to inspect China-based accounting
companies that audit New York-listed businesses, easing an audit dispute that
threatened to boot more than 200 Chinese companies from U.S. exchanges.
Deloitte self-reported the
violations at its China affiliate to the PCAOB in 2019 upon learning of them,
an SEC official said.
https://asia.nikkei.com/Politics/International-relations/US-China-tensions/U.S.-SEC-fines-Deloitte-s-China-affiliate-20m-for-audit-violation
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