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Junheng Li's  Instablog

Junheng Li
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Equity Research, Author of Tiger Woman On Wall Street (McGraw Hill, Nov 8, 2013)
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  • Actions Against China Auditors: SEC Walks A Tightrope 0 comments
    Dec 14, 2012 11:13 AM | about stocks: CHRM, MOBI, DL, YUM, PG, GM, F

    The U.S. Securities Exchange Commission (the SEC) has charged the Chinese affiliates of Ernst & Young, PwC, KPMG, Deloitte Touche Tohmatsu and BDO China Dahua with violating U.S. securities law after the five firms failed to turn over audit work papers in connection with nine Chinese companies accused of potential accounting fraud.

    What really at issue is not the auditors so much as the deadlock between the SEC and the Chinese government, which derives essentially from a conflict in the laws of the two jurisdictions. That is, while under U.S. securities laws, the SEC is empowered to investigate alleged fraud and require the production of audit work papers from non-U.S. accounting firms, under Chinese law The U.S. Securities Exchange Commission (the SEC) has charged the Chinese affiliates of Ernst & Young, PwC, KPMG, Deloitte Touche Tohmatsu and BDO China Dahua with violating U.S. securities law after the five firms failed to turn over audit work papers in connection with nine Chinese companies accused of potential accounting fraud.

    What really at issue is not the auditors so much as the deadlock between the SEC and the Chinese government, which derives essentially from a conflict in the laws of the two jurisdictions. That is, while under U.S. securities laws, the SEC is empowered to investigate alleged fraud and require the production of audit work papers from non-U.S. accounting firms, under Chinese laws, such audit work papers are deemed as state secrets and cannot be provided.

    The full analysis can be found at: blogs.forbes.com/junhli/

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: the SEC, Chinese ADRs, China Stocks: CHRM, MOBI, DL, YUM, PG, GM, F
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