SEC Alert! SEC orders Deloitte’s Chinese Affiliate to Pay $20 Million Penalty for Asking Audit Clients to Conduct Their Own Audit Work.


The SEC order finds that, in the course of numerous audits over multiple years, Deloitte-China personnel asked clients to select their own samples for testing and to prepare audit documentation purporting to show that Deloitte-China had obtained and assessed the supporting evidence for certain clients’ accounting entries. This created the appearance that Deloitte-China had conducted the required testing of clients’ financial statements and internal controls when there was no evidence in the audit file that it had in fact done so.
The order finds that the misconduct involved both junior and senior audit team members and reflected a lack of audit supervision by audit partners. The order also finds that Deloitte-China failed to adhere to numerous PCAOB auditing standards, including due professional care of audit evidence, sampling, documentation, internal control over financial reporting, audit supervision, and quality control.
In addition to the financial penalty, the order censures Deloitte-China and requires the firm to complete a review and assessment of its policies and procedures by an independent consultant retained by Deloitte Touche Tohmatsu Limited (“Deloitte-Global”), a U.K. entity with which it is indirectly affiliated. The order further requires Deloitte-China to implement a plan to address deficiencies identified by the independent consultant that is approved and overseen by Deloitte-Global, and to subsequently undergo several additional annual reviews. The order also requires Deloitte-China to require additional training over three years for all of its audit professionals who serve U.S. public company audit clients.