THE US AND CHINESE arms of Deloitte are being sued by a group of investment funds over losses at a Chinese education company audited by the firm.
The lawsuit, filed in the US District Court in Manhattan by ten US-based shareholders, contends that the Big Four accountancy firm signed on the accounts of ChinaCast "that were almost entirely false", Reuters reports.
ChinaCast, a provider of post-secondary education and e-learning in China, was de-listed from the US Nasdaq stock exchange last year for failing to file its 2011 annual report.
According to the plaintiffs' complaint, Deloitte failed to detect "brazen looting" at the company when ChinaCast's assets were transferred into an entity owned by former chief executive Ron Chan.
"Deloitte recklessly failed to conduct even the most basic audit procedures and blatantly violated numerous accounting standards," the funds said in the complaint cited by Bloomberg.
Chan was ousted from the company last year. The company said at the time that it had uncovered questionable activities and transactions involving Chan that "raise the spectre of possible illegal conduct." Chan denied the allegations in a statement to shareholders at the time, Reuters said.
According to the complaint, Deloitte's Shanghai-based affiliate audited ChinaCast's annual reports 2007 until 2010, while the US audit firm controlled the audit of ChinaCast's financials.
"We do not believe that the plaintiffs have a valid basis for bringing this action. We will defend ourselves vigorously," Deloitte said.
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