The head of a global accounting firm said his auditors in China could face jail terms if they turned over audit documents to US regulators and, as a result, they would have to refuse to do so. Grant Thornton International, with large operations in China, has not been asked to hand over documents from its China-based auditors, "but we're certainly prepared for it; we're expecting it," said Chief Executive Ed Nusbaum.
Auditors are caught in the middle of a dispute between Chinese and US audit industry regulators over sharing information, Nusbaum said in an interview with Reuters. US authorities are trying to get their hands on documents that could help them investigate possible fraud at China-based companies selling shares in the United Sates, but auditors have resisted for fear of violating China's state secrets law.
"If you violate the SEC's rules, you would be in a US jail; if you violate (China's) Ministry of Finance rules, I suspect you would be in a Chinese jail," Nusbaum said. China's Ministry of Finance is responsible for regulating accounting in that country. The US Securities and Exchange Commission in September sought a court order to force a Chinese unit of accounting giant Deloitte Touche to produce records related to possible accounting fraud at China-based Longtop Financial Technologies Ltd. Deloitte has said it needs the approval of Chinese authorities before it can do so. Accounting experts have said it is only a matter of time before other auditors are in the same dilemma. A rash of accounting scandals at China-based companies that caused billions of dollars of investor losses has prompted broad investigations by the SEC and the Department of Justice. Chinese authorities are also pressing auditors to improve audit quality, Nusbaum said.