Hong Kong court orders Ernst & Young to hand over mainland audit papers
Ernst &Young's claim that mainland secrecy laws prevented disclosure to city regulator rejected
A Hong Kong court rejected accounting firm Ernst & Young's argument that the mainland's state secrets law meant it could not hand over information to the city's securities regulator.
The landmark ruling by the Court of First Instance supports international regulators wanting access to auditors' papers to investigate mainland companies listed in their markets.
Ernst & Young has deliberately withheld information from the SFC
But analysts say it may prompt the Ministry of Finance to speed up planned reforms that would ban Hong Kong and international accountants from working on the mainland. The South China Morning Post reported on Monday that the ministry planned to implement rules this year preventing international accountants from conducting audits on the mainland alone.
They would have to team up with mainland accountants to do so. The rules also say all accountants must strictly follow the state secrets law and should not take audit papers out of the mainland.
Brokers said the new rules were prompted by concerns in Beijing that overseas regulators could force accountants or mainland firms to disclose government or company information while checking their books.
Mainland e-commerce giant Alibaba, which is planning to list in the US, and other technology firms have gathered sensitive data on many firms and individuals on the mainland.
Mainland law has a wide definition of "state secrets", which can range from accountants' working notes to student examination papers.