Paul Gillis, professor of practice and co-director of the IMBA program at Peking University's Guanghua School of Management, wrote on his China Accounting Blog that if Elliot's decision stands "a ban could lead to the (Chinese) companies being kicked off of U.S. stock exchanges for failing to produce audited financial statements."
While the audit firms have been "wailing" over their discipline from the judge, Gillis said, "it is their clients and the investors in those clients who will be hurt if the firms are banned" from being allowed to audit financial filings required by the SEC.
"A ban from practice before the SEC would not allow the China member firms of the Big Four to do any audit work that is used in connection with a report filed with the SEC," Gillis explained.
He called the threat of a ban the SEC's "nuclear option" in its dispute with CSRC and other government agencies in Beijing, which have prevented U.S. regulators from accessing Chinese company financial records.
Chinese stocks listed on the New York Stock Exchange and Nasdaq could be frozen as soon as April, when listed companies are required to file audited 20-F financial reports with the SEC, Gillis said. A company that fails to file a report using an SEC-approved auditor can have its stock barred from trading.
The outcome would be "a bad result, not just for the firms, but also for the capital markets," Gillis said.
The Big Four firms were required to form divisions in China as Chinese partnerships specifically to meet Beijing government rules. The units are Ernst & Young Hua Ming, KPMG Huazhen, Deloitte Touche Tohmatsu CPA, and PricewaterhouseCoopers Zhong Tian.
- Written by Eric Johnson in Beijing
At the time of publication the author had no position in the companies mentioned.