Ernst & Young Produces Audit Documents in Hong Kong; Appeals Order Over Mainland Papers

After producing a disc of audit documents it held in Hong Kong, Ernst & Young (EY) has filed a Notice of Appeal in respect of the court order to produce documents held by its Mainland affiliate, EY Hua Ming (EYHM), according to the Securities and Futures Commission (SFC).

EY’s Notice of Appeal relates to documents held by EYHM, EY’s agent in carrying out specific audit activities as part of EY’s engagement as reporting accountant and auditor of Standard Water Limited.

The disc of documents produced to the SFC on June 20 were found by EY on various hard drives in its Hong Kong office on the eve of the trial in this case, in March 2013, when production of the documents were refused by EY on the basis that the hard drives belonged to EYHM.

EY now informs the SFC that it needs another five weeks to complete its search of the hard drives in its Hong Kong office to find additional documents required to be produced to the SFC.

The SFC is investigating the materials contained in the disc produced last June 20 to determine whether EY has fully complied with the court order and whether any further action needs to be taken against EY.

The Chinese law

In 2012, the SFC went to the Court of First Instance in Hong Kong after EYHM, “failed to produce the records to the relevant Mainland authority as requested,” said the Hong Kong regulator.

The SFC had asked China’s assistance under an arrangement for mutual assistance in investigatory matters between the two jurisdictions.

EY had argued during the trial that it was prevented from producing audit working papers held by EYHM because of restrictions under Chinese law.

The SFC argued and the court accepted that Chinese law does not prohibit the production of these documents and there is no blanket prohibition against their production under Chinese law.

The SFC also argued that EY had not done anything to follow the process under Chinese law for obtaining clearance of these documents. EY has informed the SFC that it has now provided these documents to the China Securities Regulatory Commission as part of this process.

EY’s Notice of Appeal contends that the court was wrong in respect of the documents held by EYHM in the Mainland.

No date has been set for the hearing of EY’s appeal.

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