A spokeswoman for E&Y said the firm intends to "vigorously defend" itself against the OSC's allegations.
"Issues concerning Zungui Haixi came to light as a result of actions we took during our 2011 audit," said Erika Bennett, a Toronto-based spokeswoman for E&Y. "We brought these issues to the attention of the audit committee and management, and eventually resigned as auditor. We have cooperated with the OSC throughout its subsequent investigation."
However, the regulator alleges E&Y's failure to comply with generally accepted auditing standards during its audits of Zungui Haixi - ahead of its initial public offering in 2009 and a subsequent annual audit in 2010 - constituted breaches of the Ontario Securities Act.
The OSC said to conduct the IPO audit, E&Y assembled a team overseen by a partner in the firm's China Market Group, but the partner did not review any of the underlying evidence gathered during the audit, instead only limiting her review to summary documents.
The regulator said E&Y's original senior manager for the IPO audit did not understand Chinese and had no experience with audits of China-based companies.
It alleged she was removed from the file after she informed the partner that she was "clearly not the right person to review the fieldwork in detail as much of the documentation in the working papers is in Chinese."
Her replacement also did not understand the language and also had no auditing experience with China-based companies, the OSC said.
A hearing on the matter has been scheduled for July 15.
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