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The Securities and Exchange Commission turned up the pressure on auditors in China when it recently initiated enforcement proceedings against the Chinese affiliates of the Big Four accounting firms and BDO. On December 3, 2012, the Commission filed an administrative action alleging that each firm—Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen, PricewaterhouseCoopers Zhong Tian CPAs Ltd., and BDO China Dahua Co. Ltd.—violated Sarbanes-Oxley and the Securities Exchange Act by failing to provide the Commission copies of audit workpapers. The case is the latest step in an ongoing dispute between U.S. regulators and the auditors of Chinese companies trading on U.S. markets. While Sarbanes-Oxley requires foreign accounting firms to provide audit workpapers to the SEC and the Public Company Accounting Oversight Board (PCAOB) on demand, this requirement has not been generally followed in China, where a number of civil and criminal laws restrict the transmission of information that could harm the national or “economic” interests of the country. The current SEC dispute—which could lead to five of the largest audit firms in China being barred from providing public accounting for companies listed on U.S. exchanges—could have a significant impact on corporations with large operations in China.

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