China

China Slaps Deloitte With $31m Fine Over Huarong Audit

The leading accounting firms in the world by revenue are Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY), and Klynveld Peat Marwick Goerdeler (KPMG). Photo: Reuters

China has fined auditing giant Deloitte $30.8 million for failing to perform its duty in assessing the asset quality of China Huarong Asset Management Co Ltd, the country’s finance ministry announced.

Deloitte’s Beijing operations also will be suspended for three months, the ministry said in a statement.

China Huarong and its investment arms were fined for internal governance lapses, risk control failures and severe inaccuracy of accounting information from 2014 to 2019, the statement added.

Deloitte said it respects and accepts the ministry’s decision, according to a statement published on its website.

“We regret that, in this matter, the MOF considers certain aspects of our work fell below the required auditing standards,” it said.

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Deloitte also said it hasn’t received any information from Huarong that it intends to make any restatement to its past financial statements, and no changes to the relevant audit reports have been found to be necessary.

The finance ministry said Deloitte had failed to discover the real situation of the underlying assets in its audit and ignored the approval compliance for Huarong’s major investment matters.

The accounting firm did not issue proper audit opinions on the identified abnormal transactions of Huarong, and it did not obtain sufficient and appropriate evidence when it provided auditing services, it added.

Huarong, one of four major state-owned distressed-debt managers, has been in turmoil after it failed to release its 2020 earnings on time. It eventually reported a huge loss.

The company later injected Citic Group as its largest shareholder in a government-led restructuring and has disposed of non-core businesses.

Reuters with additional editing by Sean O’Meara

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.