Deloitte Hua Yong, the “Big Four” accounting firm’s China unit, has been fined 212 million yuan (US$31 million) for failures in audit work conducted at bad loan manager China Huarong Asset Management, as Beijing strengthens financial regulation. The Deloitte unit failed to detect the true conditions of some of Huarong’s underlying assets, or to fully assess its businesses and operations, from 2014 to 2019, China’s ministry of finance said in a statement on its website on Friday. Deloitte’s Beijing branch has been banned from conducting business for three months, and its “illegal income” has been “confiscated”. “During the period when it offered auditing services [to Huarong], [Deloitte Hua Yong] did not maintain [a] professional sceptical attitude, did not effectively conduct essential auditing procedures, did not obtain sufficient and adequate auditing evidence and had severe auditing flaws,” the ministry said in its statement. Financial risk prevention has become increasingly important for Beijing, with authorities and regulators accelerating measures to regulate different segments of the country’s financial industry . China has stepped up measures to clean up entities and individuals that have roiled its economic and financial stability in the past, such as Tomorrow Group’s Xiao Jianhua and Huarong. US regulator to meet Deloitte, EY in Hong Kong ahead of audit inspections The ministry finalised the penalties based on on-site inspections at both Deloitte and Huarong from February 24 to March 6 this year, the statement said. The accounting firm ignored compliance checks on important investments, failed to offer auditing suggestions on abnormal transactions and failed to objectively assess the condition of Huarong’s assets, the ministry added. The licences of two certified accountants at Deloitte were also suspended, with a few others ordered to pause accounting services for either a year or six months. Meanwhile, Hong Kong-listed Huarong was fined 100,000 yuan as the ministry found that the company’s internal risk controls were ineffective and accounting data was “severely distorted”. Seven Huarong subsidiaries also faced the same amount of fines. In a statement on Friday, Deloitte said it respected and accepted the ministry’s penalties, but did not directly admit or refute the government’s specific accusations. “To be clear, there is no suggestion by the [ministry] that either Deloitte Hua Yong, its Beijing branch, or any of its people have done anything unethical,” Deloitte said. “We respect and accept the [ministry’s] penalty decision. We regret that, in this matter, the [ministry] considers certain aspects of our work fell below the required auditing standards.” China bad-debt firms plan property support of up to US$24 billion Huarong is among China’s four big bad loan managers, along with Cinda, China Great Wall Asset Management and China Orient Asset Management. It was bailed out by the government in 2021 after its debt problems roiled the world’s second-largest credit market the same year. Huarong delayed its earnings report for 2020 before major problems came to light, including net losses of 102.9 billion yuan in 2020. Citic Group, the state-owned investment giant, has become Huarong’s largest shareholder after receiving a 3 per cent stake from the ministry of finance, according to an exchange filing by Huarong on March 7 this year.