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SEC Ups The Ante in Subpoena Dispute With Deloitte Touche Shanghai By Filing An Administrative Proceeding Against the Chinese Accounting Firm Threatening Its Ability to Appear Before the Commission

On May 9, 2012, the SEC announced that it has filed an Administrative Proceeding against Deloitte Touche Tohmatsu CPA Ltd. ("D&T Shanghai") for its refusal to provide the agency with audit work papers in connection with the Commission’s investigation of the accounting firm’s client for alleged accounting fraud. The Administrative Proceeding was filed while the Commission is in the midst of a subpoena enforcement action against the same accounting firm, that is scheduled to be heard in federal court in early June. The new matter is latest proceeding in the dispute over whether the SEC can compel the Chinese accounting firm to respond to its subpoena – the penalty which D&T Shanghai could face for its failure to comply is censure or being denied the ability to appear before the Commission.…

PCAOB Censures Accounting Firm and Imposes a Record $2 Million Penalty

On Wednesday, February 8, 2012, the Public Company Accounting Oversight Board ("PCAOB") announced that it had settled a proceeding with Ernst & Young LLP ("E&Y"). PCAOB censured the accounting firm and imposed a $2 million penalty upon it, which was the largest civil money penalty ever imposed by the agency. In addition, four of its current and former partners were sanctioned for violating PCAOB rules and standards.…

Should U.S. Issuers Have the Option to Prepare Financial Statements in Accordance with International Financial Reporting Standards, Instead of U.S. GAAP?

The SEC believes that the global capital markets and investors could benefit from globally accepted accounting standards, and is therefore considering permitting U.S. issuers to prepare financial statements in accordance with International Financial Reporting Standards, as opposed to generally accepted accounting principles as used in the United States.

In its concept release, the SEC explains its long-standing desire to minimize disparity between the U.S. accounting and disclosure methods and those of other countries. Minimizing such disparity may encourage and facilitate expansion of capital markets across borders while simultaneously affording sufficient disclosure to protect investors.

Currently, the Financial Accounting Standards Board and the International Accounting Standards Board are working together toward converging U.S. and international accounting standards. The SEC acknowledges the risk that each Board may slow convergence efforts if U.S. issuers are permitted to use International Financial Reporting Standards to prepare financial statements. This is just one of the many considerations the SEC is seeking comment on in its concept release.…

New Audit Standard for Internal Controls

One day after the SEC approved interpretive guidance to assist management in creating a process for evaluating internal controls over financial reporting, the PCAOB adopted Auditing Standard No. 5, An Audit of Internal Control over Financial Reporting that Is Integrated with an Audit of Financial Statements. This new standard replaces Auditing Standard No. 2. 

The PCAOB collaborated with the SEC to ensure Auditing Standard No. 5 is consistent with the SEC’s interpretive guidance. Mark Olson, PCAOB Chairman, indicated that, similar to the SEC’s interpretive guidance, the “new standard is more risk-based and scalable.” The new standard requires that auditors report to the audit committee any control deficiencies that are important, even though they may not constitute a “material weakness.” Thus, while eliminating unnecessary procedures and costs, the new standard is designed to increase the chances of finding material weaknesses in internal controls before such material weaknesses have a material effect on a company’s financial statements. 

The standard is effective for audits performed during fiscal years ending on or after November 15, 2007, but the PCAOB encourages auditors to comply with the new standard once it is approved by the SEC.

The PCAOB is developing guidance for auditors of smaller companies to apply the new standard.…