In yet another blow for the Hong Kong accounting industry, Hong Kong EY lost a case against the regulator SFC concerning mainland company Standard Water. Accounting expert Paul Gillis is amazed no negotiated deal proved to be possible.
Paul Gillis at his weblog:
In a carbon copy of the SEC’s case against the Big Four, a Hong Kong High Court judge has ruled that EY cannot withhold working papers on Standard Water, a mainland company that pursued a listing in Hong Kong. The ruling is a major blow to the accounting profession in Hong Kong.
The Securities and Futures Commission (SFC) brought the case against EY. While EY Hong Kong was the accountant of record, they apparently outsourced the audit to EY Hua Ming, EY’s mainland affiliate. When SFC asked to see the working papers, EY Hong Kong demurred, saying they did not have them and that EY Hua Ming had refused to provide them because Chinese laws prohibited doing so.
And in a comment at Reuters:
“The ruling creates a really messy situation and it gets worse with the regulatory changes that were composed by the mainland last week,” said Paul Gillis, an accounting professor at Peking University‘s Guanghua School of Management.
“I am surprised that mainland regulators and Hong Kong regulators haven’t found a way to negotiate a solution to this. I think it’s probably tied up in the fight with the SEC (U.S. Securities and Exchange Commission) and China doesn’t want to set any precedents with respect to Hong Kong that it might have to follow through on with the SEC.”
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