Deloitte, SEC Clash in New Confidence Crisis Chapter
After several weeks of quiet, the lingering confidence crisis for US-listed China stocks has returned to the headlines again in a report saying the US securities regulator is clashing with a major accounting firm over records for one of the biggest companies to fail in the crisis. The accountant, Deloitte Touche Tohmatsu, is apparently stalling to comply with a subpoena from the US Securities and Exchange Commission calling on it to hand over accounting records regarding Longtop Financial, a financial services firm whose shares tumbled and was later delisted after a major accounting scandal erupted earlier this year. (English article) Deloitte’s stalling tactics are a worrisome sign, as they seem to indicate that perhaps it suspected problems at Longtop long before it resigned from the account during the scandal. This is exactly the kind 
of news the market doesn’t want to hear, as it would imply that perhaps Deloitte and other major accounting firms like PricewaterhouseCoopers may often have suspicions about US-listed Chinese companies’ accounting records, but simply stay quiet to avoid losing any business, obviously a huge breach of their responsibilities. Some old timers might remember that a much bigger accounting scandal in the 1990s over former energy high-flyer Enron ultimately brought down former major consulting firm Arthur Andersen. I doubt Deloitte or any other major accounting firms will face a similar shut-down from this latest confidence crisis. But I wouldn’t be surprised to see the major accounting firms going back to re-examine the books of their US-listed China clients, and perhaps a resignation or two as accountant for one or more of the larger listed companies in the next few months.
Bottom line: An ongoing clash between the US securities regulator and Deloitte over fraud at a US-listed China firm could mark the opening of a new chapter in the confidence crisis toward US-listed China stocks.
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