At the end of last month EY was ordered by a Hong Kong court to produce documents held by its Chinese mainland affiliate office EY Hua Ming. However, the Securities and Futures Commission said EY last Friday lodged an appeal in respect of the court order, having produced a disc of documents it held in Hong Kong.
The SFC said the disc of documents which have been produced were found by EY on “various hard drives in its Hong Kong office on the eve of the trial in this case, in March 2013, when production of the documents had been refused by EY on the basis that the hard drives belonged to EYHM”.
Last month however, when EY received the court order, SFC chief executive Ashley Alder said, contrary to EY’s belief, “this case is primarily about the obligations of an accounting firm in Hong Kong to comply with requirements under Hong Kong law. The case is not about People’s Republic of China law”.
He added: “Auditors should not withhold information that is in their possession and sought by the SFC in connection with suspended misconduct in Hong Kong’s markets.”
The regulator said EY has informed it that it needs another five weeks to complete its search of the hard drives in its Hong Kong office to find additional documents required to be produced to the SFC.
The Notice of Appeal lodged by EY relates to documents held by EYHM, EY’s agent in carrying out specific audit activities as part of EY’s engagement as reporting accountant and auditor of Standard Water Limited.
EY had argued during the trial that it was prevented from producing audit working papers held by EYHM because of restrictions under PRC law. The SFC argued and the court accepted that PRC law does not prohibit the production of these documents and there is no blanket prohibition against their production under PRC law.
The SFC also argued that EY had not done anything to follow the process under PRC law for obtaining clearance of these documents. EY has informed the SFC that it has now provided these documents to the China Securities Regulatory Commission as part of this process.
EY’s Notice of Appeal contends that the court was wrong in respect of the documents held by EYHM in mainland China.
The SFC is investigating the materials contained in the disc produced last Friday to determine whether EY has fully complied with the court order and whether any further action needs to be taken against EY.
No date has been set for the hearing of EY’s appeal.
