Deloitte-China Fined $20 Million by SEC over Failure to Comply with Auditing Requirements
The Securities and Exchange Commission (SEC) charged Deloitte-China, the Chinese affiliate of the Deloitte global network of accounting firms, with failing to comply with fundamental U.S. auditing requirements in its component audits of U.S. issuers and its audits of foreign companies listed on U.S. exchanges. Deloitte-China agreed to settle the charges by paying a $20 million penalty and agreeing to extensive remedial measures.
The SEC order finds that, in the course of numerous audits over multiple years, Deloitte-China personnel asked clients to select their own samples for testing and to prepare audit documentation purporting to show that Deloitte-China had obtained and assessed the supporting evidence for certain clients’ accounting entries. This created the appearance that Deloitte-China had conducted the required testing of clients’ financial statements and internal controls when there was no evidence in the audit file that it had in fact done so.
"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. "These basic, foundational auditing requirements are necessary to instill trust in our capital markets. It's a privilege for issuers to access our markets — the largest, deepest, most liquid markets in the world. 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 order finds that the misconduct involved both junior and senior audit team members and reflected a lack of audit supervision by audit partners. The order also finds that Deloitte-China failed to adhere to numerous PCAOB auditing standards, including due professional care of audit evidence, sampling, documentation, internal control over financial reporting, audit supervision, and quality control.
Source: SEC
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