In a statement to the press Tuesday evening Hong Kong time, Ernst & Young (Hong Kong) confirmed it "did not issue an accountant’s report for the IPO", and said it understood "our obligations to the SFC and endeavor to fully comply", but noted that it also had a need to "[meet] our compliance obligations with mainland China’s laws and regulations". A report in this morning’s South China Morning Post interpreted this to be a reference to mainland secrecy laws.
"As legal proceedings are under way, it would be inappropriate for us to comment further," the E&Y(HK) statement concluded, after noting that the company would "work closely with the revelevant regulators" and that it trusted "there will be a quick resolution" to the matter.
‘Matter of serious concern’
In a statement on its website, the SFC noted that it regarded E&Y(HK)’s failure to comply with a “formal notice” seeking specific audit working papers and underlying accounting documents relating to the company as a “matter of serious concern”, given that E&Y(HK) “was the reporting accountant and [its joint venture partner] EY Hua Ming “—which had “also failed to produce the records to the relevant mainland authority as requested” – was Ernst & Young’s agent” in mainland China.
The SFC documents note that EY(HK) resigned as auditor of Standard Water in March 2010, informing the Stock Exchange of Hong Kong that it did so after "discovery of certain inconsistencies in documentation provided by the company". Shortly after that, Standard Water also withdrew its listing application.
The SFC said that it had brought its proceding, in Hong Kong’s Court of First Instance, after consulting the relevant mainland authority about access to the records in question. "The SFC and the relevant mainland authority are continuing to work closely together in relation to this issue," it added.
According to the Hong Kong Standard, Standard Water – which it says operates some 50 water facilities across 13 provinces of China – had planned to raised “as much as $3 bn (HK$23.4bn)” in the planned initial public offering.
