Audit Firm Ordered To Disclose PRC Working Papers To SFC Despite PRC "State Secrets Law" Concerns

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On 23 May 2014, the Securities and Futures Commission of Hong Kong ("SFC") successfully obtained an order from the High Court of Hong Kong requiring Ernst & Young Hong Kong ("E&Y") to produce all audit working papers prepared in connection with its audit of Standard Water Limited ("Standard Water"), despite concerns raised by E&Y that: (i) disclosing such information would result in E&Y breaching numerous PRC laws, including the State Secrets law; and (ii) in any event, E&Y had no right to possession of the relevant documents, the audit having been conducted by Ernst & Young Hua Ming LLP ("HM"), a sino-foreign cooperative joint venture between Hua Ming Certified Public Accountants and E&Y in China.

Background -

Standard Water was incorporated in the Cayman Islands and registered as a non-Hong Kong company under Part XI of the Companies Ordinance (Cap. 32). Its two main operating subsidiaries engaged in the business of water supply and waste water treatment in the PRC. In 2009, Standard Water applied to list on the main board of the Stock Exchange of Hong Kong Limited. E&Y was engaged as reporting accounting and independent auditor for that purpose...

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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