Big 4 Accounting Firm Deloitte Given Slap on the Wrist After Allowing Firms in China to Do Their Own Audit Work
Deloitte China has been fined by the SEC for allowing its audit clients to perform some of their audit work on their own.
Big 4 Accounting firm Deloitte was given a minor slap on the hand by the SEC after allowing its clients to perform some of their own audit work, disregarding independence and objectivity, two pillars of the auditing profession.
The SEC shared:
The Securities and Exchange Commission today charged Deloitte Touche Tohmatsu Certified Public Accountants LLP (Deloitte-China), the Chinese affiliate of the Deloitte global network of accounting firms, with failing to comply with fundamental U.S. auditing requirements in its component audits of U.S. issuers and its audits of foreign companies listed on U.S. exchanges. Deloitte-China agreed to settle the charges by paying a $20 million penalty and agreeing to extensive remedial measures.
The SEC order finds that, in the course of numerous audits, Deloitte-China personnel asked clients to select their own samples for testing and to prepare audit documentation purporting to show that Deloitte-China had obtained and assessed the supporting evidence for certain clients’ accounting entries. This created the appearance that Deloitte-China had conducted the required testing of clients’ financial statements and internal controls when there was no evidence in the audit file that it had in fact done so.
“We find that Deloitte-China fell woefully short of professional auditing requirements in numerous component audits of Chinese operations of U.S. issuers and audits of Chinese companies listed on U.S. exchanges,” said SEC Chair Gary Gensler. “These basic, foundational auditing requirements are necessary to instill trust in our capital markets. It’s a privilege for issuers to access our markets — the largest, deepest, most liquid markets in the world. Investors in U.S. markets should be protected — and have trust in a company’s financial numbers — regardless of whether an issuer is foreign or domestic.”
“While the SEC’s action today does not implicate a violation of the Holding Foreign Companies Accountable Act, the action does underscore the need for the Public Company Accounting Oversight Board (PCAOB) to be able to inspect Chinese audit firms,” Chair Gensler added. “A fundamental goal of the PCAOB’s inspection regime is to identify weaknesses in the firms’ quality control processes — the very weaknesses at issue in this case.”
Gensler was Hillary Clinton’s accountant for her 2016 Presidential Campaign. The fact that Deloitte was given such a light fine for validating auditing principles and perhaps signing off on misstated financial results that were not objective is not surprising.
We already know that Biden gave China easy access to US markets. He did this by allowing China not to have to comply with the Sarbanes-Oxley legislation that US companies have to comply with.
This work is extremely expensive, but if done right, ensures that a company has the controls in place to ensure that its financials are accurate. Chinese companies don’t have to comply with this legislation due to actions taken by Joe Biden.
Not to worry. The Bidens received $1 billion after this was done.