SEC Charges Deloitte-China for Failure in Compliance with Audit Requirements

On September 29th, U.S. Security and Exchange Commission (SEC) charged Deloitte-China with failure to comply with U.S. auditing requirements, and Deloitte-China has agreed to settle the charges by paying a $20 million penalty and agreeing to extensive remedial measures.

 Deloitte Touche Tohmatsu Certified Public Accountants LLP is one of the world’s four largest international accounting firms. SEC believes that Deloitte-China personnel asked clients to select their own samples for examining and to prepare audit documentation purporting to show that Deloitte-China had obtained and assessed the supporting evidence for certain clients’ accounting entries. There was no evidence in the audit documentation that Deloitte-China conducted its own audit of the clients. Deloitte-China personnel simply failed to meet the audit requirements when conducting audits of Chinese company’s business and Chinese companies listed on U.S. exchanges.

  “Across multiple years and audit engagements, Deloitte-China failed to meet professional standards, exercise independence and fulfill their essential role as gatekeepers,” said SEC Chair Gary Gensler. The misconduct involved both junior and senior audit team members and reflect a lack of audit supervision by audit partners. Deloitte-China failed to adhere to numerous PCAOB auditing standards, including due professional care of audit evidence, sampling, documentation, internal control over financial reporting, audit supervision, and quality control.

 In addition to financial penalty, the order censures Deloitte-China and requires the firm to complete a review and assessment of its policies and procedures by an independent consultant retained by Deloitte Touche Tohmatsu Limited (Deloitte-Global). SEC further requires Deloitte-China to implement a plan to address the deficiencies of independent consultant that is approved and overseen by Deloitte-Global, and subsequently undergo several annual reviews. In addition, all Deloitte-China professionals who serve U.S. listed companies should be required additional training within three years.