© Reuters. FILE PHOTO: Offices of Deloitte are seen in London, Britain, September 25, 2017. REUTERS/Hannah McKay/File Photo
BEIJING (Reuters) -China has fined auditing firm Deloitte 211.9 million yuan ($30.8 million) for failing to perform its duty in assessing the asset quality of China Huarong Asset Management Co Ltd, the finance ministry said on its website on Friday.
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.
Deloitte also said it has not 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.
In a separate statement, Huarong said the company and its seven subsidiaries had received a 100,000 yuan fine each.
The issues it was punished for had no direct impact on its current and future business, Huarong said, adding that it would strengthen internal controls and its risk management system.
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.
($1 = 6.8733 renminbi)
On Monday, the China Securities Regulatory Commission (CSRC) issued an unprecedented fine of nearly 200 million yuan ($31 million) to the auditing firm Deloitte for its failure to detect information manipulation during the audit of the companies.
In the recent months, the CSRC has conducted inspections and investigated the auditing business in the country, uncovering numerous irregularities of its trusted auditing companies in the process. It is alleged that during the inspection, the agency found instances of irregularities in the audit reports of 19 companies issued by Deloitte, including inaccurate collection and verification of major information in its audit process.
The CSRC has accused Deloitte of serious information misrepresentation and omitting important information in the audit reports of these companies. It also accused the company of giving false independence assurances to clients in its audit process. Following its investigation, the agency has issued a 200 million yuan fine ($31 million) to the company and asked it to rectify the irregularities.
The commission further stated that it will keep a strict supervision on the auditing businesses in the country and take strict disciplinary action against violations from such companies, in order to protect the interests of the investors and maintain the credibility of the Chinese capital market.
This fine represents the largest punishment for an auditing company in the country.
It is expected that the issue will be taken seriously by other major auditing firms in the country, which will be prompted to exercise caution in their auditing services in order to meet the enforcement standards of the CSRC.