A Survey of Legal and Regulatory Trends
Edited by P. M. Vasudev and Susan Watson
Chapter 2: Suspension of Chinese units of ‘Big 4’ audit firms: the question of moral turpitude
The regulation of gatekeepers is primarily intended to ensure the accuracy of issuers’ disclosures. The ‘Big 4’ accounting firms (Deloitte, EY, KPMG and PwC) may face a moral hazard issue resulting from the perception that capital markets would not tolerate a reduction in their current number. Moral hazard amplifies when the Big 4 perceive that they are too big to fail. The problems experienced with Chinese reverse merger companies (RMCs) and Initial Public Offerings (IPOs) revealed multiple leverages between the court and enforcement agencies from companies’ home and host states. It remains a challenge in shaping the global governance of auditors when they are in the middle between two jurisdictions. This chapter examines the experience with the Big 4’s handling of Chinese companies listed on US exchanges and argues that the theory of ‘between a rock and a hard place’ in this context may not serve as an affirmative defence for the Big 4’s refusal to produce audit documents to US regulators. The chapter advocates multi-jurisdictional cooperation as a meaningful tool to promote the integrity of audit, financial reporting and global capital markets. Keywords: • Chinese Reverse Merger Companies • Cross-border enforcement • Sarbanes-Oxley 106 • Big 4 audit firms • Audit investigation • SEC
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.