Thursday, December 06, 2012
Global accounting firms working in China are in a can't-win standoff with the US Securities And Exchange Commission. The SEC wants the work papers from audits of Chinese companies trading on US exchanges. The Chinese government prohibits the turnover. Accounting firms are caught in the middle. The SEC says accounting firms are breaking the law. The accounting firms say they will break Chinese law if they comply with the SEC. No matter what happens, accounting firms will fare poorly in the perception war. Chinese companies have a history of dodgy bookkeeping, and the Chinese government hasn't moved vigorously to control them. The SEC is most likely right in wanting the work papers because those documents might well reveal decisions far removed from generally accepted accounting principles. So what are accounting firms to do? They must fight an expensive legal battle until their lawyers forge some kind of agreement between the US and Chinese governments. Either that, or the SEC will ban Chinese companies from trading on US exchanges, an outcome that benefits no one. Meanwhile, the SEC can publicly flog the auditors and make them look bad.