China reviews audit firms

NEW YORK / SINGAPORE - China's financial regulators have asked the world's biggest audit companies to conduct an urgent review of their work on US-listed Chinese companies and provide them with details on information they may have provided to overseas regulators, two sources told Reuters.

The move is set to ratchet up tensions between US and Chinese financial regulators following a string of accounting scandals at US-listed Chinese companies.

Last month, the US Securities and Exchange Commission (SEC) asked a US court to enforce a subpoena it sent to Deloitte Touche Tohmatsu Ltd's China practice for work papers from its audit of scandal-hit Longtop Financial Technologies Ltd.

Two sources from the audit industry told Reuters that the Ministry of Finance and China Securities Regulatory Commission (CSRC) met with the so-called Big Four audit companies - KPMG Advisory (China) Ltd, PricewaterhouseCoopers International Ltd, Ernst & Young Global Ltd and Deloitte - along with two smaller companies last week.

The government asked the companies to conduct an urgent review of all audits they had done on US-listed Chinese companies in 2010 along with work on US initial public offerings by Chinese companies.

They have been asked to report back by the end of this week with information on whether audit work papers or other client information were given to overseas regulators or any of their overseas practices.

One source, who can't be named due to the sensitive nature of the meeting, said the Chinese authorities reiterated to the companies their rules on confidentiality.

"We are being asked to give that message to foreign regulators that seek to get information from us," the source said.

The second source said that the information requested included all correspondence on US-audit work between the companies' Chinese mainland offices and their counterparts in Hong Kong and Macao. Companies have also been asked to provide details of audits done by their Hong Kong offices on US-listed Chinese companies, provided their main operations are on the Chinese mainland.

The request is to verify that auditors are abiding by China's confidentiality rules for accountants.

"Given what's happened in the States recently with the SEC ratcheting up the pressure, there was likely to be some sort of reaction and this is part of it, if not the total of it," an expert said.

The CSRC and China's Ministry of Finance ministry had no immediate response when reached by phone. Reuters asked all of the 'Big Four' companies about the meeting. PwC, KPMG and Ernst & Young declined to comment while Deloitte did not immediately respond.

The Public Company Accounting Oversight Board, the US accountancy watchdog, has been negotiating with the Chinese authorities to be allowed to conduct inspections of Chinese audit companies.

Reuters