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Hong Kong firm settles with US SEC over alleged audit failures
December 17, 2014 / 7:27 PM / 3 years ago

Hong Kong firm settles with US SEC over alleged audit failures

WASHINGTON, Dec 17 (Reuters) - A Hong Kong-based accounting firm will disgorge auditing fees and temporarily cease accepting new U.S. clients after U.S. regulators on Wednesday sanctioned the firm over audit failures tied to a company suspected of fraud.

The U.S. Securities and Exchange Commission said that Baker Tilly Hong Kong Limited, director Andrew Ross and former director Helena Kwok “ignored red flags” of $59 million in related-party transactions reflected in accounting records for China North East Petroleum Holdings Limited.

The SEC said that Baker Tilly will disgorge $75,000 in audit fees, plus cease accepting new U.S. company clients until it undergoes a compliance review by an independent consultant.

Ross and Kwok also agreed to settle by paying penalties of $20,000 and $10,000, respectively, and face a three-year bar from practicing as accountants before the SEC.

An attorney for Baker Tilly could not be immediately reached for comment.

The SEC’s case against Baker Tilly marks the latest in a string of cases against so-called “gatekeepers” such as auditors and attorneys whom the agency says are uniquely positioned to help detect or prevent fraud before it affects investors.

“Auditors play a critical gatekeeper role in our financial markets, and Baker Tilly failed to uphold U.S. auditing standards,” Antonia Chion, an SEC associate director in the enforcement division, said in a statement.

It also marks yet another case tied to fraud at China-based companies that list in U.S. markets. For the past few years, the SEC has been investigating and charging companies and in some cases, their auditors, in a rash of accounting scandals.

The accounting problems have caused investors to lose billions of dollars, and led to dozens of delistings and deregistrations of Chinese companies.

The SEC charged China North East Petroleum, the company at the heart of the Baker Tilly complaint, with fraud in 2012. It was delisted and deregistered that same year.

The SEC alleges that Baker Tilly failed to properly audit the company’s year-end financial statements, which did not disclose the “magnitude” of the related-party transactions involving the company’s CEO and the CEO’s mother. (Reporting by Sarah N. Lynch; Editing by Christian Plumb)

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