The authorities claimed Deloitte’s audit of one of the country’s largest bad-debt managers was marred by negligence
China’s Finance Ministry has imposed an unprecedented fine of 212 million yuan ($30.8 million) on accountancy firm Deloitte, for negligence in its audit of bad-debt manager China Huarong, the ministry said in a statement on its website on Friday. Bad-debt managers are asset management firms that are tasked with buying distressed loans from banks.
According to the financial authorities, several inspections, staff interviews, and a paperwork review revealed that Deloitte, one of the ‘Big Four’ global accounting giants, had failed to detect the condition of Huarong’s underlying assets and objectively assess its businesses operations from 2014 to 2019. Huarong also concealed the fact that it experienced a number of internal and risk control failures at the time, according to the ministry.
“During the period when it offered auditing services [to Huarong], [Deloitte] did not maintain [a] professional skeptical attitude, did not effectively conduct essential auditing procedures, did not obtain sufficient and adequate auditing evidence and had severe auditing flaws,” the statement read.
Apart from the fine, Beijing halted operations at Deloitte’s Beijing branch for three months and suspended the licenses of two certified Deloitte accountants. Meanwhile, Huarong, one of the country’s largest bad-debt managers, and its seven subsidiaries were fined 100,000 yuan each over internal governance and risk control failures, as well as “severely distorted” accounting data.
Deloitte said in a statement on Friday that it respected the ministry’s action, but it did not either admit or deny its culpability.
“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. 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,” the firm said.
According to a Bloomberg report, Beijing has recently started urging state-owned companies to stop using the Big Four for audits and turn instead to domestic accounting firms in a push to ensure the country’s data security and lower its reliance on foreign firms.
This article was originally published by RT.