WASHINGTON: The US accounting watchdog on Thursday said it has full access to inspect and investigate firms in China for the first time ever, removing the risk that around 200 Chinese companies could be kicked off US stock exchanges.
The Public Company Accounting Oversight Board’s (PCAOB) announcement came amid worries that Chinese firms could be taken off United States stock exchanges if they did not comply with audit requirements – a demand that places around 200 businesses at risk.
The statement marks a breakthrough in a longstanding dispute.
Congress in 2020 passed a law targeting Chinese companies, under which the US audit watchdog must be able to inspect audits of foreign firms listed on US markets.
While many foreign companies conform to the standard, this has not been the case for mainland China and Hong Kong firms.
China has long cited national security and confidentiality concerns for denying foreign regulators access to local accounting firms.
“For the first time in history, the (board) has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong,” the oversight board’s chair Erica Williams said in a statement on Thursday.
But she cautioned that the announcement “should not be misconstrued in any way as a clean bill of health for firms”.
“This is the beginning of our work to inspect and investigate firms in China, not the end,” said Williams, adding that it will reconsider its determination if China obstructs access at any time.
The oversight board is continuing to demand complete access in China and Hong Kong moving forward, with teams making plans to resume regular inspections early next year, she said.
Prominent US-listed Chinese firms include e-commerce heavyweight Alibaba, rival JD.com, internet giant Baidu and video platform Bilibili.
“This falls into the category of a game changing view of Chinese companies because the threat of their delisting seems to have been eliminated,” said Art Hogan, chief market strategist at B. Riley Financial.
US-listed shares of Chinese companies started trading higher amid the news, but gave up gains due to broader financial market pressure.
The PCAOB, which oversees registered public accounting firms around the world, said late last year said that Chinese authorities had prevented the watchdog from completely inspecting and investigating in mainland China and Hong Kong.
Washington and Beijing reached a landmark deal in August to settle a long-running dispute over auditing compliance of US-listed Chinese firms.
In its statement, the PCAOB said it exercised sole discretion to select firms for audit and had selected two, KPMG Huazhen LLP in China and PricewaterhouseCoopers in Hong Kong.
PCAOB staff identified “numerous potential deficiencies” in their inspection work, the board’s chair said, saying the inspection reports will be finalised and made public next year.
She declined to specify the types of deficiencies, but said they are in line with those audit inspectors have seen during first-time inspections elsewhere.
The determination announced on Thursday resets a three-year clock for compliance, said Gary Gensler, the chair of the Securities and Exchange Commission, which oversees the PCAOB.
In a statement, he said: “Chinese authorities will need to give PCAOB “full access for inspections and investigations in 2023 and beyond”. – Reuters, AFP