State Board Report

October 2011

The Securities and Exchange Commission on September 8 filed an enforcement action against Deloitte Touche Tohmatsu Ltd. for failing to produce documents related to Longtop Financial Technologies Limited. DTTL Shanghai has been Longtop’s auditor since 2007 and resigned on May 22, 2011 after it discovered numerous improprieties during an audit for the year ended March 31, 2011, the SEC reports. In the firm’s resignation letter, which was part of a Form 6-K furnished to the SEC by Longtop, D&T indicated that its prior year audit reports for the company could no longer be relied upon by investors. The SEC then issued and served a subpoena on the accounting firm for documents related to the incomplete audit of Longtop for the year ended March 31 as well as for prior year audits. Deloitte has claimed they cannot hand over the documents because, “Chinese law prohibits Deloitte China from providing the requested documents directly to a foreign regulator,” the firm’s spokesperson said. “Deloitte China is caught in the middle of conflicting demands by two government regulators and DTTL hopes this matter will be resolved in a timely and sensible manner.”

The New York Stock Exchange delisted Longtop’s securities in August 2011.

The Public Company Accounting Oversight Board has not been allowed to conduct firm inspections in China, but its representatives met with their Chinese counterparts, the China Securities Regulatory Commission, in Beijing in July 2011. Their second round of talks, scheduled to be held in October in Washington, D.C., has been postponed. On October 3, the PCAOB issued “Staff Audit Practice Alert No. 8: Audit Risks in Certain Emerging Markets,” which states: “In just two months in 2011, more than 24 companies with their principal place of business in the People’s Republic of China filed Forms 8-K with the SEC reporting auditor resignations, accounting irregularities, or both.” The PCAOB has ceased registering firms from countries where it is unable to do inspections.

Forbes reporter Francine McKenna commented on September 9: “The PCAOB must consider how much longer they will allow foreign-based audit firms to produce audit opinions if the PCAOB cannot inspect them and if home countries refuse to cooperate with U.S. regulators.”

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