Beijing is happy about China-U.S. audit oversight cooperation, too
Beijing is happy about China-U.S. audit oversight cooperation, too
"We look forward to building on previous experience and carrying out audit oversight cooperation with our U.S. counterparts in the years to come with enhanced mutual respect and trust."
It's not every day that we have some good news that makes China, the United States, and everyone in between happy simultaneously. But with the easing threat of mass delistings of Chinese stocks from US exchanges, they can all live to fight another day.
On Thursday, the U.S. regulator over accounting firms for U.S.-listed companies hailed its complete access to inspect and investigate Chinese firms. The Chinese regulator on Friday published its satisfaction about “resolving the cross-border audit oversight issues via a regulatory cooperation mechanism.” And the market breathes a big sigh of relief because all those Chinese companies probably won’t have to delist from the U.S., at least for now.
The U.S. satisfaction has been well reported, for example, in the Wall Street Journal:
The Public Company Accounting Oversight Board said it has secured complete access to inspect China-based audit firms for the first time in history, resetting a three-year delisting clock for Chinese companies on American stock exchanges.
The U.S. audit regulator said Thursday that its recent inspection of these accounting firms was conducted without consultation or input from Chinese authorities.
For more than a decade, regulators in China had refused to allow the PCAOB to inspect China-based accounting firms or routinely access the audit records of Chinese companies, citing national security concerns. Beijing softened its stance this year, after the U.S. began implementing the Holding Foreign Companies Accountable Act, which would force delistings of companies whose auditors can’t be inspected for three consecutive years.
By this summer, more than 160 companies were flagged by the Securities and Exchange Commission as noncompliant with the new law and at risk of losing their U.S. listings starting in 2024.
On Friday morning, China Securities Regulatory Commission (CSRC) also publicly endorsed the outcome in a statement [ENG] posted on its website in the form of a Q&A with an unidentified reporter.
China is largely viewed from the outside as having yielded to U.S. insistence. In CSRC’s telling, it was “a regulatory cooperation mechanism” “under a bilateral cooperation framework” where “the U.S. regulator accessed audit documentation including audit work papers through the Chinese regulator, and conducted interview and took testimony of related personnel of the accounting firms with the participation and assistance of the Chinese side.”
Also, “in compliance with relevant laws and regulations and in line with international common practice, the Chinese side made proper treatment in accordance with the agreement to certain data, such as personally identifiable information, contained in audit documentation for inspections or investigations.”
Eventually, “information security requirements in applicable laws were met as regulators from both sides fulfilled their statutory regulatory mandates.”
This is, of course, not the end of the matter. The PCAOB is continuing to demand complete access in the future, and the Chinese side “looks forward to building on previous experience and carrying out audit oversight cooperation with our U.S. counterparts in the years to come with enhanced mutual respect and trust.”
Reporter: On the morning of December 15th local time, the Public Company Accounting Oversight Board (PCAOB) of the U.S. issued a report confirming that it was able to completely inspect and investigate the accounting firms headquartered in Chinese Mainland and the Hong Kong SAR in 2022, and thus vacating its relevant determinations made in 2021. This announcement, showing good progress in China-US audit oversight cooperation, is widely seen by the market as a positive signal for Chinese companies listed or seeking listings on the U.S. market. What are the CSRC’s comments on this matter?
Official: We have noticed the report and relevant statements issued by the U.S. regulators. The CSRC has always been committed to resolving cross-border audit oversight issues via a regulatory cooperation mechanism. The practice has proven that a practical path for cooperation that accommodates the legal and regulatory requirements in both jurisdictions can certainly be found, as long as both sides work together with mutual respect, professionalism, and pragmatism.
On August 26th, the CSRC, Ministry of Finance of the People’s Republic of China, and the PCAOB signed an agreement for audit oversight cooperation to bring the inspection and investigation of accounting firms under a bilateral cooperation framework. Regulators from both sides have since then acted in strict accordance with the legal and regulatory requirements of their respective jurisdictions and consensus reached in the agreement, and worked together efficiently and effectively on a number of field inspections and investigations, yielding good progress. During the cooperation, both sides set up inspections and investigation plans upon thorough communication and coordination. The U.S. regulator accessed audit documentation including audit work papers through the Chinese regulator, and conducted interview and took testimony of related personnel of the accounting firms with the participation and assistance of the Chinese side. Meanwhile, in compliance with relevant laws and regulations and in line with international common practice, the Chinese side made proper treatment in accordance with the agreement to certain data, such as personally identifiable information, contained in audit documentation for inspections or investigations. By doing so, information security requirements in applicable laws were met as regulators from both sides fulfilled their statutory regulatory mandates.
The CSRC welcomes the PCAOB’s decision to vacate its previous determinations based on professional and regulatory considerations. We look forward to building on previous experience and carrying out audit oversight cooperation with our U.S. counterparts in the years to come with enhanced mutual respect and trust, thus establishing long-term and sustainable cooperation arrangements that will enhance the stability and predictability of international regulatory environment and better protect global investors. (Enditem)