Big Four to appeal SEC China ruling

The "Big Four" accounting firms said on Thursday they intend to appeal against a ruling by the U.S. Securities and Exchange Commission recommending the suspension of the firms' China units for six months.

Deloitte, Ernst&Young, KPMG and PriceWaterhouseCoopers said in a joint statement that they seek to initiate a review by the SEC Commission without delay, as the decision would not be final or effective until it is approved by the full commission.

SEC Administrative Law Judge Cameron Elliot ruled that the Big Four China units should be suspended in the United States for six months in a 112-page ruling.

While the Big Four said they can and will continue to serve all their clients without interruption, a loss in the appeal could shake hundreds of Chinese companies listed in the U.S., which have been pounded by a wave of accounting scandals and short-selling.

If the Big Four China units cannot audit the books in the U.S., Chinese companies seeking to return to American stock markets this year may find it more difficult to win the confidence of global investors.

"The incident will prompt Chinese firms to comply with international financial reporting standards with greater transparency and eased access to auditing documents for regulators," said Kevin Wang, partner at All Bright Law Offices, a leading Chinese law firm in financial litigation.

Wang said the most likely outcome of the ongoing standoff would be a compromise on both sides.

Also possible would be a temporary ruling to make sure the Big Four accounting firms can continue their existing auditing business while winning more time to negotiate with U.S. regulators, according to Wang.

The SEC filed lawsuits against the China affiliates of each of the Big Four auditors for their refusal to provide audit work documents related to China-based companies under investigation for potential accountancy fraud.

The firms said providing such access would violate Chinese law.

China and the U.S. have been trying to find a solution, with the Public Company Accounting Oversight Board (PCAOB) signing a memorandum with Chinese regulators last May. But a deal involving the U.S. Securities and Exchange Commission has yet to be reached.

The regulators held investigative duties in their respective jurisdictions, and the agreement provided a mechanism for them to request and receive assistance from each other in obtaining documents and information, according to the PCAOB.

"The firms are heartened by the significant progress on information sharing between the Chinese and U.S. regulators over the past year, which the firms have worked hard to support," the joint statement said.