The U.S. securities regulator has imposed a fine on a subsidiary of Deloitte in China with allegations of violating audit regulations.

Deloitte is one of the “Big Four” accounting companies worldwide.

According to Reuters, the U.S. Securities and Exchange Commission on September 29 ruled that Deloitte’s Chinese subsidiary allowed some Chinese corporate clients to conduct their audit work.

Among the clients are foreign companies listed on the U.S. stock exchanges.

The commission said that Deloitte-China had asked some clients to select their own samples for testing over multiple years.

Those clients have also been required to prepare documentation that gave the appearance that the affiliate had audited their financial reports and internal controls. Still, there was no evidence it had done so.

As a result, Deloitte-China was fined $20 million for violating relevant regulations.

Gary Gensler is chairman of the U.S. Securities and Exchange Commission. He said in a statement that Deloitte-China seriously lacks the professional audit requirements in auditing Chinese issuers and companies listed in the United States. 

He added: “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.”

Gensler said that his commission’s ruling reflects the need for the U.S. Public Company Accounting Oversight Board to be able to inspect Chinese audit firms.

In August this year, the United States and China reached an agreement on auditing supervision. Accordingly, the U.S. regulators will be allowed to inspect China-based accounting firms that audit New York-listed companies.

The U.S. Public Company Accounting Oversight Board can also send personnel to Hong Kong to inspect and audit the relevant information of China-funded companies listed in the U.S.

The agreement could help ease an audit dispute that threatens to boot more than 200 Chinese companies from U.S. exchanges.

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