Deloitte China fined $31m for letting clients do their own audit work

SEC chairman Gary Gensler said the Deloitte China misconduct “underscored” the need for the PCAOB to be able to inspect Chinese audit firms.

“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,” he said.

As well as the fine, the SEC also ordered any Deloitte China audit professionals who serve US public company audit clients to undertake extra training for the next three years.

Under the sanctions, Deloitte China must also hire an independent consultant to review its policies and procedures and then come up with a plan to address any issues it reveals. Deloitte’s global executive must then approve of and oversee this plan, as well as run “several additional annual reviews” of its China arm.

Both junior and senior auditors were involved in the misconduct, the SEC found, with firm partners failing to supervise those working under them adequately.

Warning that the SEC would aggressively pursue all PCAOB-registered accounting firms that failed to do their jobs truthfully, the watchdog said such misconduct undermined market confidence.

“This action involves audit failures at the most basic level. Across multiple years and audit engagements, Deloitte-China auditors failed to meet professional standards, exercise independence and fulfil their essential role as gatekeepers,” said Gurbir Grewal, the SEC’s director of enforcement.

“Auditors are vital to the success of our financial markets and the standards they must abide by are neither optional, nor are they aspirational best practices.

“Rather, they’re foundational to audit quality and investor protection, and every audit firm that conducts audits for issuers with securities trading on US exchanges must meet them. Here, Deloitte China audit professionals fell woefully short.”

The Australian Securities and Investments Commission is also ramping up its scrutiny of accounting firms’ audit work domestically, announcing in June that it would bypass accounting firms to directly tell company directors when their auditors have made significant errors in addition to its annual audit quality reports.