SEC Administrative Judge Cameron Elliot issued a blistering decision last week in a long-running dispute over regulator access to auditor work papers in fraud investigations. The judge banned the Chinese Big Four firms from auditing US issuers for six months and lambasted them for voluntarily putting their firms “between a rock and a hard place.” The decision is not yet final but the enormous impact is already being felt worldwide.
A post at University of Chicago Booth School of Business Capital Ideas blog discusses new research from Joseph Gerakos and Chad Syversen on the dangers of industry concentration in the event of a market exit by one of the large audit firms. For example, what if PwC, which audits five of the top ten global pharma companies ran into trouble amid the ongoing investigations of bribery of Chinese officials, in particular by PwC audit client GlaxoSmithKline and a few of its other audit clients?
I’ve been watching the developments for a while now between the global audit firms, their clients, the regulators on both sides, and investors – especially the shorts – who have been raising the issues of Chinese frauds. I’ve written quite a bit about these issue. If you’re playing catch up, this list of posts is a good place to start.
There have been significant developments on the issue of Chinese frauds and in the efforts by the SEC and the PCAOB to investigate and bring responsible parties to justice, including the auditors of the companies under investigation.
But none of these developments will have any significant impact on the bigger problems facing China and investment in China.
The post below was originally published at Forbes.com on August 22, 2011. Given the SEC’s recent actions against Deloitte Shanghai regarding the firm’s unwillingness to provide audit workpapers for their former client Longtop, I thought it was helpful to make sure you saw it.
My Forbes column appears on Tuesdays and Thursdays.
Go here to read, Accounting Watchdog.
Columns for the week ending November 12, 2010:
I have been inundated the last few days with Google Alerts for PwC UK’s study on key business destinations in the emerging markets countries. I guess China is getting a little too problematic and expensive, and India is too “developed” and expensive, Moscow is PwC’s Achilles heel and Brazil is funky, so the advisory firm […]