Tuesday, February 9, 2021

Deloitte having big problems of auditing professional ethics and quality in China from 2016

There are serious problems at the Beijing office of Deloitte. And Deloitte is just playing by the Chinese audit industry’s unspoken rules. 

A leaked document from a Deloitte employee who remains anonymous at their Beijing office outlined serious problems of auditing professional ethics and quality going back to 2016. It had been sent in a group email to colleagues. The report reveals the unspoken rules of the Chinese audit industry.

This has been communicated to Deloitte management and Deloitte Reputation and Risk Group (RRG) more than 30 times for 2 years since 2018, requesting Deloitte to deal with audit quality reporting issues properly. 

The employee seems to imply that managerial conflicts of interest may have resulted in inaction up till now.

Deloitte has taken no action against the accused individuals, even though the problems were first pointed out in 2018. The accused include two partners and multiple senior managers who are all mentioned by name.

The main accusation is failure to abide by proper auditing protocol. Deloitte took major shortcuts telling their clients that their jobs were thoroughly completed when they were not.

The firms include Sinotrans, a logistics platform of the state-owned transportation conglomerate China Merchants Group, Boqi Environmental, a well known waste management provider and LG CNS China. 

RYB Education — an NYSE-listed company that itself had a scandal in 2017 involving child abuse at a kindergarten — is mentioned as compensating employees with gift cards and paying for their expenses, including those incurred by senior executives’ children overseas, irregularities to which Deloitte has turned a blind eye. 

Deloitte auditors are accused of dilly-dallying on the job, failing to read requisite files, skipping quality control procedures, and even falsifying data. Pictures in the report depicted stacks of papers strewn across floors of windowless rooms.

Response from Deloitte and the regulators 

The China Security Regulatory Commission (CSRC), the main financial regulatory body equivalent to the SEC in the US acknowledged the report’s existence. CSRC now wants to verify and follow up with the relevant institutions.


Deloitte responded on its website saying that Deloitte had started an investigation and no evidence was found that affected the adequacy of their audit work. It said Deloitte reserves the right to take legal action for the spread of false information. 

But the employee had tried to report the malpractice through the appropriate channels, but Deloitte had reacted by suspending their career development. Deloitte also documented a culture of bullying and intimidation tactics.

Deloitte is one of the Big-4 largest accounting firms in the world along with PricewaterhouseCoopers, KPMG and Ernst &Young. In 2020, Deloitte was listed as one of the largest privately owned companies in the US along with Koch Industries and Cargill, the agri business giant. 

If genuine, the document offers a rare window into a lucrative but shadowy arm of the global financial system. Auditors mediate between private institutions and public regulators, making their own work less transparent and less scrutinized relative to the private clients they serve.


Instead, auditing firms rely mostly on internal ethical codes and self-enforcement mechanisms to ensure quality. This makes it difficult to see when they are misbehaving. 

In recent decades, as global financial firms have flourished, business practices and financial instruments have become more complex. Tax auditing, which has grown along with the industry, has developed into its own kind of complex trade, with its unique culture, practices, and vocabulary.

1 comment:

Unknown said...

Recently this kind of news have become the order of the day. Let's see what is the substantial steps taken by the regulatory authorities.