China’s financial regulators have asked the World’s biggest audit firms to urgently review their work on US-listed Chinese companies, and give details on information they may have provided to US regulators.

The unprecedented move, following a string of accounting scandals at US-listed Chinese companies, is set to ratchet up tensions between the financial regulators of America and China.

The request, sources said, is seen as a direct response to the move by the US regulators in the case of scandal-hit Longtop Financial Technologies Ltd, and to ensure that firms do not succumb to pressure to hand over documents to regulators outside of China.

Last month the US Securities and Exchange Commission (SEC) asked an American court to enforce a subpoena it sent to Deloitte Touche Tohmatsu’s China practice for documents from its audit of Longtop.

The Ministry of Finance and China Securities Regulatory Commission (CSRC) met last week with the so-called ‘Big Four’ audit firms; KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte along with 2 smaller firms.

The firms were requested by the government to conduct an urgent review of all audits they had done on US-listed Chinese firms in Y 2010 along with work on US initial public offerings (IPO) by Chinese companies.

They have been asked to report back by the end of this week with information on whether audit work papers or other client information were given to US regulators or any of their US practices.

The Chinese authorities emphasized to the firms their rules on confidentiality.

The information requested by China includes all correspondence on US-audit work between the firms’ Mainland Chinese offices and their counterparts in Hong Kong and Macau.

Firms have also been asked to provide details of audits done by their Hong Kong offices on US-listed Chinese companies, provided their main operations are on the Mainland.

Given what has happened in the United States with the SEC ratcheting up pressure, there was likely to be some sort of reaction and this is part of it, if not the total of it all.

The request is putting more pressure on auditors caught in the middle of competing demands from the US and Chinese regulators.

It is thought that auditors may have provided some information to the US SEC in response to questions on listed Chinese companies.

The Chinese regulators are out to learn, if the audit firms are being honest about what they are doing, and if they have shared a lot of information from China with foreigners in violation of the agreements.

The CSRC and China’s Ministry of Finance ministry had no immediate response. PWC, KPMG and Ernst & Young declined to comment and Deloitte did not respond.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

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Posted by Shayne Heffernan on Oct 19th, 2011and filed underBRIC, Companies, Latest News, Paul Ebeling.You can follow any responses to this entry through theRSS 2.0Responses are currently closed, but you can trackback from your own site.