Hong Kong Regulator Took Ernst & Young To Court

Hong Kong’s securities regulator has taken Ernst & Young to court after the audit firm failed to turn over accounting records related to a company based in mainland China.

The auditor now faces the dilemma of complying with the order from the regulator and risking a possible breach of mainland China’s state secrecy laws, or facing sanctions in Hong Kong.

The case is the first of its kind in Hong Kong, and it mirrors one in the United States in which Ernst & Young’s rival, Deloitte Touche Tohmatsu, is fighting a request from U.S. regulators to hand over work papers from its audit of the Chinese computer company Longtop Financial Technologies.

The Securities and Futures Commission wants Ernst & Young Hong Kong to hand over records from its audit work for the water provider Standard Water.

The regulator said Monday that the audit firm had claimed it did not have the relevant records, as they were being held in mainland China by its joint-venture partner, Ernst & Young Hua Ming, and could not be produced due to restrictions under the mainland’s state secrecy laws.