China hits back at SEC over audit ban on US listings of Chinese companies
Mainland securities body warns that ruling 'ignored' cross-border co-operation efforts
Bloomberg in New York
China has warned the United States of "consequences" after the Securities and Exchange Commission (SEC) barred the four largest accounting firms from conducting audits of US-listed Chinese companies.
The decision to ban the Chinese affiliates of the accounting firms for six months "ignored" China's efforts and progress made on cross-border regulatory co-operation, the China Securities Regulatory Commission (CSRC) said. Chinese stocks traded in New York fell to a two-month low on Thursday as the ruling sparked concern that the companies will not be able to put together their 2013 earnings reports in time to meet US listing requirements.
"We hope the SEC will take into consideration the big picture of China-US regulatory co-operation, make the right judgment to resolve the situation properly," the CSRC, the nation's securities body, said on its microblog yesterday. "The SEC should bear all responsibility to possible consequences arising from the decision."
The ruling was made after the accounting firms' units on the mainland failed to comply with SEC orders for documents needed for a series of accounting fraud probes. The firms receiving six-month bans were Deloitte Touche Tohmatsu CPA, Ernst & Young Hua Ming, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs.
The ruling, if finalised, could impact the 425 mainland companies - with a total market capitalisation of US$185 billion - traded in New York.
The sanctioned firms said they would appeal against the decision.
Qihoo 360 Technology, which uses Deloitte as its auditor, said the impact would be limited. Qihoo has scheduled its earnings date for around the end of February to early March. Its American depositary receipts plunged 3 per cent in New York trading on Thursday.
"The ruling will take months to be finalised and if the auditing firms appeal it could take years," Wu Jing, a director of investor relations for Qihoo, said yesterday. "We are closely monitoring the situation."
The SEC ruling would not affect 2013 annual reporting of US-listed Chinese stocks because the accounting firms may appeal and the ruling may take a long time to implement, China International Capital Corp said.
The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the US, tumbled 4.5 per cent to US$35.02, the largest retreat since November 2011.
Stock declines triggered by the SEC ruling may be a good time to buy, especially internet shares such as Qihoo, Tencent and Sohu.com the CICC report said. Tencent dropped 4 per cent to HK$501 at the close in Hong Kong yesterday. The shares plunged 3.5 per cent in New York on Thursday.
Sohu.com which also uses PwC as its auditor, would adhere to its scheduled date for fourth-quarter earnings announcements, company spokeswoman Jiang Xin said.
The accounting firms have 21 days to file a so-called petition for review with the SEC before the decision by US Administrative Law Judge Cameron Elliot would become final and go into effect.
If the five-member commission were to uphold the judge's decision, the firms could then take it to the US Court of Appeals in Washington.
The SEC enforcement division was "gratified" by the decision, chief litigation counsel Matthew Solomon said.