US regulators get access to Chinese companies’ audit data
The move allows Chinese companies to avoid being delisted from American stock exchanges.
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US regulators now have “complete” access to the audit records of Chinese firms for the first time. The December 15 announcement by the Public Company Accounting Oversight Board (PCAOB) alleviates concerns that major firms like Alibaba and Baidu would be delisted from US stock exchanges.
The PCAOB said in a statement that inspectors examined eight audit engagements conducted by China-based KPMG Huazhen and PricewaterhouseCoopers based in Hong Kong without external interference from the Chinese government. PCAOB inspectors were able to view redaction-free audit paperwork and were allowed to keep any information they gathered, according to the statement.
“It is important to understand: Today’s announcement is about one question and one question only—is the PCAOB able to inspect and investigate firms in mainland China and Hong Kong completely at this time? The answer, following thorough and systematic testing, is yes,” PCAOB Chair Erica Williams said in a statement. “I have been clear from day one: There would be no loopholes and no exceptions to our demand for complete access, and there were none.”
The PCAOB, which oversees public company audits and auditors around the world, has tried for years to gain access to the audits of Chinese companies. However, the Chinese government has resisted permitting foreign inspectors to examine sensitive data of Chinese firms, citing national security concerns.
Pressure to increase audit transparency in Chinese firms increased after the Luckin Coffee accounting scandal, which led, in part, to the Holding Foreign Companies Accountable Act in 2020. That law mandated delisting of foreign companies that did not allow PCAOB inspections. The PCAOB reached an agreement on inspection protocols with the Chinese government in August of this year and plans to continue its inspections.
“The PCAOB is continuing to demand complete access in mainland China and Hong Kong moving forward,” said Williams in the statement. “Our teams are already making plans to resume regular inspections in early 2023 and beyond, as well as continuing to pursue investigations.”—DA
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CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.