Chinese authorities have suspended Deloitte’s operations in Beijing for three months and fined the Big Four firm $31mn after finding serious deficiencies in its audit of China Huarong Asset Management.

The Chinese finance ministry said on Friday that an investigation found that Deloitte “failed to maintain professional scepticism”. Its “serious audit deficiencies” included not paying enough attention to Huarong’s many financial businesses and failing to assess the quality of the group’s assets.

China Huarong, one of China’s largest bad-debt managers, received a $6.6bn state-backed bailout in 2021 after slumping to a record Rmb103bn ($15bn) loss.

Huarong was part of Beijing’s long-running efforts to clean up the riskier parts of the financial system that were deemed to pose a threat to economic stability. The group’s restructuring was complicated by the state’s decision to execute Lai Xiaomin, the former Huarong chair, in 2021 after was found guilty of taking $280mn in bribes.

The penalties handed out to Deloitte are the latest blow to the Big Four accounting firms in the region, undermining three decades spent building large operations in China and Hong Kong.

The Big Four firms, which alongside Deloitte include PwC, KPMG and EY, have drawn greater scrutiny in China and Hong Kong in recent years after a wave of delayed financial results and defaults, mostly from clients in China’s troubled property sector.

Xue Yunkui, an accounting professor at the Cheung Kong Graduate School of Business and a government adviser, said the punishment issued to Deloitte was “unprecedented for the Big Four in China”.

Xue said that China “for a long time” trusted the Big Four more than local agencies but the treatment of Deloitte signalled Beijing now wanted to strengthen local players instead. “It will deal a heavy blow to Deloitte and create reputational damage to other Big Three,” he said.

In a statement, Deloitte said that “this is a local Mainland China regulatory matter. The Deloitte Mainland China audit firm will comply with the administrative ruling and continue to meet all audit reporting obligations to both local and international clients.”

Last year, the US Securities and Exchange Commission charged Deloitte’s China arm with falling “woefully short” by having clients complete their own audit tasks. Deloitte China agreed to pay a $20mn penalty.

Rival PwC earlier this year resigned as auditor of Chinese property developer Evergrande. The decision took place amid an investigation into Evergrande and PwC by the Accounting and Financial Reporting Council, Hong Kong’s audit regulator, over the developer’s 2020 accounts.

Last year a Hong Kong court heard accusations that KPMG conducted “appalling” audit work that allowed a $400mn accounting fraud by a US-listed Chinese biotechnology company, China Medical Technologies.

On Friday, Huarong and its related investment companies were also fined by the ministry for failures in risk control and distortion of accounting information.