The SEC has begun an administrative proceeding against the
Chinese member firm of a Big Four audit network for its alleged willful
failure, in response to a Commission request, to provide audit work papers
despite its legal obligations, as a registered accounting firm, to do so. The
firm is a public accounting firm registered with the Public Company Accounting
Oversight Board, and located in Shanghai , the
People’s Republic of China .
(In the Matter of Deloitte Touche Tohmatsu Certified Public Accountants Ltd.,
Release No. 34-14872, May 9, 2012)
Beginning in April
2010, SEC staff has made extensive efforts to obtain the audit work papers
connected to the firm’s independent audit work for an issuer-client in relation
to a Commission investigation into potential accounting fraud. The firm said
that it would not produce the relevant audit work papers because of its
interpretation that it was prevented from doing so by PRC law. The SEC staff
sought to obtain the relevant audit work papers through international sharing
mechanisms. However, these efforts have been unsuccessful.
In conjunction with
the staff’s efforts to obtain the relevant audit work papers through the firm’s
local regulator, pursuant to Section 106 of the Sarbanes-Oxley Act as amended
by Section 929J of the Dodd-Frank Act, the Commission staff served the firm,
through its designated U.S. agent, with a request for all audit work papers and
all other documents related to any audit work or interim reviews performed for
the issuer for the fiscal year ending December 31, 2009. As of the date of the
filing of the administrative proceeding, the SEC staff did not have the audit
work papers sought in the Section 106 request.
The SEC noted that Section 106(b) of
Sarbanes-Oxley directs a foreign public accounting firm that issues an audit report, performs audit work
or interim review to produce its audit work papers to the Commission upon
request. Section 106(e) provides that a willful refusal to comply with such a
request by the Commission is a violation of Sarbanes-Oxley, which also
constitutes a violation of the Securities Exchange Act. According to the SEC,
the audit firm willfully refused to provide the Commission with its audit work
papers and all other documents relating to its audit work for the issuer, and
thus willfully violated Sarbanes-Oxley and the Exchange Act.