SEC Settles Dispute with Chinese Accounting Firms

SEC Settles Dispute with Chinese Accounting Firms

Blog Focus on Accounting, Audit Committees and the Law

The SEC and the Chinese accounting firms associated with the Big Four accounting firm networks have resolved their long-running litigation over the firms' failure to produce documents in connection with SEC investigations. The firms declined to produce the documents on the ground that production would violate applicable laws of the People's Republic of China. The SEC initiated an administrative proceeding against the firms in 2012. In January 2014, an SEC administrative law judge issued an initial decision finding that the firms' failure to produce the documents violated the Sarbanes-Oxley Act. The ALJ barred the Chinese Big Four firms from "appearing and practicing" before the SEC for six months. (See this previous post.) The firms appealed to the SEC.

On February 6, the SEC and the four firms entered into an agreed order with respect to the dispute. Under the agreement, each firm was censured and agreed to pay $500,000. The order stays the administrative proceeding  for four years, provided that the firms perform specific steps regarding production of documents. Importantly, the six-month bar imposed by the ALJ will not take effect so long as the firms comply with the requirements of the order.

The ALJ's six-month bar had raised questions whether it would disqualify the Chinese firms from performing audit services relating to the Chinese operations of SEC-registered multi-national companies. This resolution substantially reduces that concern.