A U.S. judge has ruled that the Chinese units of the Big Four accounting firms be suspended from auditing U.S.-traded companies for six months, a move that could temporarily leave dozens of Chinese companies that trade on U.S. markets without an auditor.
Without audited financial statements, a company can't sell securities in the U.S. or stay listed on U.S. exchanges.
The Big Four are PricewaterhouseCoopers, Deloitte Touche Tohmatsu, KPMG and Ernst & Young. A fifth firm, Dahua CPA, was censured by the judge but not suspended.
Cameron Elliot, an SEC administrative law judge, ruled that the audit firms disobeyed U.S. law when they refused to turn over documents about some of their clients to the Securities and Exchange Commission to aid the commission in investigating those U.S.-traded Chinese companies for possible fraud. The firms said their auditors could be thrown in jail if they cooperated with the SEC without the Chinese government's blessing.
In a joint statement, the Big Four firms in China called the judge's decision "regrettable" and said they would appeal. "In the meantime the firms can and will continue to serve all their clients without interruption."
The SEC said it was gratified by the ruling and that it upholds the commission's authority to obtain records that are "critical to our ability to investigate potential securities law violations and protect investors."
According to the Wall Street Journal, the five Chinese firms involved in the case have a total of 103 U.S.-traded companies that they audit or in which they played a substantial role in the audit, according to their 2013 annual reports filed with U.S. regulators.