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Deloitte Hides From S.E.C. Behind Chinese Wall Over Longtop


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Jan 17, 2010
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New Jersey
9/09/2011 @ 2:36PM

When diplomacy doesn’t work, call in the Cavalry.

The U.S. Securities and Exchange Commission (SEC) yesterday formally requested a U.S. Federal Court to compel Deloitte Touche Tohmatsu (Deloitte) Shanghai to turn over documents and workpapers related to their audit of Longtop Financial Technologies Limited (“Longtop”), a Cayman Islands company, based in China, that listed its shares on the New York Stock Exchange in 2007. Deloitte Shanghai audited Longtop’s financial statements for several years, both before and after Longtop’s 2007 initial public offering in the United States.

Deloitte Shanghai resigned as auditor for Longtop on May 22, 2011, after discovering numerous financial improprieties while conducting its audit for the year ended March 31, 2011.

An excerpt of the resignation letter from Deloitte Shanghai to the Longtop Audit Committee on May 22, 2011:

As part of the process for auditing the Company’s financial statements for the year ended 31 March 2011, we determined that, in regard to bank confirmations, it was appropriate to perform follow up visits to certain banks. These audit steps were recently performed and identified a number of very serious defects…In the light of this, a formal second round of bank confirmation was initiated on 17 May. Within hours however, as a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

In that connection, we must insist that you promptly return our documents.

Then on 20 May the Chairman of the Company, Mr. Jia Xiao Gong called our Eastern Region Managing Partner, Mr. Paul Sin, and informed him in the course of their conversation that “there were fake revenue in the past so there were fake cash recorded on the books”. Mr. Jia did not answer when questioned as to the extent and duration of the discrepancies. When asked who was involved, Mr. Jia answered: “senior management”.

We bring these significant issues to your attention in the context of our responsibilities under Statement on Auditing Standards No. 99 “Consideration of Fraud in a Financial Statement Audit” issued by the American Institute of Certified Public Accountants.

…These recent developments undermine our ability to rely on the representations of the management which is an essential element of the audit process; hence our resignation.

Deloitte Shanghai registered with the U.S. accounting firm regulator, the PCAOB, in June of 2004. Registration is required for all audit firms, in and out of the United States, who wish to provide audit services to U.S. listed companies. According to their most recent annual report to the PCAOB, Deloitte Shanghai issued audit reports for 48 U.S. listed companies, including Longtop.

Read more Deloitte Hides From S.E.C. Behind Chinese Wall Over Longtop - Forbes

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