U.S. judge suspends "Big Four" China accounting units over audits

WASHINGTON - Chinese units of the global Big Four accounting firms have been barred by a US Securities and Exchange Commission judge from leading audits of US-listed companies for six months. The judge said KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst and Young had willfully failed to give US regulators the audit work of certain Chinese companies under investigation for alleged fraud.

The SEC had sought audit work papers from the firms to assist its investigations, but the firms refused to turn over the documents, citing Chinese regulations which treat the information as State secrets. The four companies have said they intend to appeal against the ruling.

It is the latest escalation in a bilateral spat over regulators' access to auditing of documents of Chinese companies suspected of accounting fraud. At least 130 domestic US companies encountered questions about their accounting or disclosure starting around 2010, and that wave of alleged problems caused the companies’ stocks to plunge, costing US investors billions of dollars on paper.

Many of the companies had gained access to US markets through reverse mergers, in which the Chinese companies merged with American shell companies that were already listed on US exchanges, thus avoiding the regulatory scrutiny that comes with a traditional initial public offering.

The Chinese Government agreed in May 2013 to allow US accounting regulators to see limited audit records and other documents held by Chinese audit firms, but many are still said to be  hidden.