Exclusive: China quizzes audit giants on documents
By Rachel Armstrong and Dena Aubin
SINGAPORE/NEW YORK (Reuters) - China's financial regulators have asked the world's biggest audit firms to urgently review their work on U.S.-listed Chinese companies and give details on information they may have provided to overseas regulators, two sources told Reuters.
The unprecedented move, following a string of accounting scandals at U.S.-listed Chinese companies, could ratchet up tensions between U.S. and Chinese financial regulators.
It could also throw another wrench into Chinese expansion efforts by the Big Four auditors -- Deloitte, KPMG, PricewaterhouseCoopers and Ernst & Young -- which were already concerned about hits to their reputation from accounting problems at China-based companies.
"Everyone knew a day of reckoning would come later, and in this case the day of reckoning is now," said Lynn Turner, former U.S. Securities and Exchange Commission chief accountant.
China has been one of the fastest-growing markets in the world for accounting firms, expanding by nearly 20 percent in 2010 and accounting for an estimated $1.5 billion in revenue for the Big Four firms last year, according to data from the International Accounting Bulletin.
China's request for information, sources said, is seen as a direct response to a move by U.S. regulators to get audit work papers on Longtop Financial Technologies Ltd, and an effort to assure that auditors do not hand over documents to authorities outside of China.
Last month, the SEC asked a U.S. court to force Deloitte Touche Tohmatsu's China practice to hand over documents from its audit of Chinese software company Longtop.
U.S. investors have lost billions of dollars on China-based companies listed on U.S. exchanges after questions were raised about their accounting, prompting a broad probe by the SEC.
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