Deloitte is starting to become particularly concerned about doing
business in China. Last year, the Big Four auditing firms discovered
that a number of financial irregularities regarding a series of U.S.
listed companies centralized in China. Auditing firms become aware of
problems towards the end of April.
Deloitte has decided to
discontinue doing business with Boshiwa last week on concerns the firm
wasn't providing the appropriate answers to those questions. Deloitte
feels it is crucial that any firms they do business with do so with full
transparency.
Deloitte has since stopped doing auditing work for
Daqing Dairy Holdings Ltd. earlier this week. That decision was made
shortly after the firm's shares were suspended over a few allegations.
According
to Linus Yip of First Shanghai Securities, auditors may continue to
leave many of their Chinese clients, particularly ahead of earning
season. This could create significant problems as companies go
unaudited. Fears that auditors are no longer comfortable taking the risk
of working with these clients could prompt more of them to break these
engagements. As a result, it may be more difficult to catch financial
irregularities and potential fraud.
The future of the auditing
firms and their relationships with clients hinges largely on the new
policies issued by the regulators and the responsibility auditors will
be forced to accept.