China suspends Deloitte’s Beijing unit and fines it

China, Deloitte’s Beijing unit

Due to “severe audit errors” in the company’s work with a significant state-owned asset management, China’s Finance Ministry has stopped Deloitte’s Beijing office’s operations for a period of three months.

The action was taken in response to a probe of its audits of China Huarong Asset Management Co., a company that received financial assistance in late 2021. The audit firm’s local subsidiary, Deloitte Hua Yong—its name in Chinese—did not determine the true value of China Huarong’s assets or offer appropriate audit views on anomalous transactions, according to the Finance Ministry.

Deloitte stated on Friday that it had given the ministry’s inspection its complete cooperation. “We respect and accept the penalty judgement made by the Ministry of Finance. We regret that the Ministry of Finance believes that several areas of our work in this case fell short of the necessary auditing standards, the company added.

To be clear, the ministry of finance made no claims that Deloitte Hua Yong, its Beijing unit, or any of its employees had engaged in unethical behaviour.

The auditor was also assessed a $31 million fine by the ministry.

Deloitte When the asset management closed a $2.3 billion IPO in Hong Kong in 2015, Hua Yong served as its auditor. It served China Huarong until the conclusion of the company’s 2019 accounts, at which point the regional office of Ernst & Young took its position.

The largest of four state-owned bad-debt managers set up in the late 1990s to straighten out the balance books of China’s huge state-owned banks was China Huarong. The asset manager’s primary focus was on purchasing commercial loans that were in default or difficulties, but over time, it rapidly diversified into other markets.

When China Huarong failed to provide its 2020 annual report on schedule in early 2021, problems began to emerge. It disclosed a $16 billion loss for the year five months later. The corporation wrote down the value of many of its assets.

The asset manager was bailed out in late 2021. A group of state-owned financial institutions injected $6.5 billion into China Huarong. Lai Xiaomin, the organization’s former chairman, was given the death penalty in January 2021 after admitting to bribery and theft. A few weeks later, he was put to death.

In 2021, the Finance Ministry started looking into the auditing work Deloitte Hua Yong performed for China Huarong. A special inspection team was established to carry out on-site inspections at China Huarong and Deloitte, hold hearings, interview pertinent staff members, and evaluate documents.

According to the auditor’s website, Deloitte Hua Yong has more than 20,000 specialists working for it in 30 Chinese cities.

Also, China Huarong and seven of its companies were each fined 100,000 yuan ($14,500) by the agency.