EXCLUSIVE China sends regulators to Hong Kong to assist US audit inspection sources

A Chinese national flag flies outside the China Securities Regulatory Commission (CSRC) building on Financial Street in Beijing, China, July 9, 2021. REUTERS / Tingshu Wang

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HONG KONG, 22 Sept. (Reuters) – Beijing has sent a team of regulatory officials to Hong Kong to assist the US audit regulator with on-site audit inspections involving Chinese companies, four people familiar with the matter said. of a historic agreement between the two countries.

A China-U.S. Deal last month allows U.S. regulators, for the first time, to inspect China-based accounting firms that control New York-listed companies, an important step towards resolving an audit dispute which threatened to get more than 200 Chinese companies out of US exchanges. Read more

About 10 officials from the China Securities Regulatory Commission (CSRC) and the Ministry of Finance (MOF) arrived in Hong Kong and joined the audit inspection, which began on Monday, three people said.

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The officials will assist a team of inspectors from the Public Company Accounting Oversight Board (PCAOB), the United States’ audit control body, which is located in Hong Kong for on-site inspection, the four people said.

All sources refused to be named due to the sensitivity of the matter.

Representatives from CSRC and MOF did not immediately respond to Reuters requests for comment. The PCAOB did not respond to Reuters questions sent outside US business hours.

The meeting of US and Chinese officials in Hong Kong marks a major step forward in what was supposed to be an arduous process of implementing the audit agreement, the most detailed agreement the PCAOB has ever reached with China.

According to two separate sources, China Southern Airlines and data center company GDS Holdings are among the Chinese companies listed in the US for audit inspection in the Asian financial hub.

China Southern Airlines and GDS did not respond to requests for comment.

Reuters reported last month that U.S. regulators had selected a number of U.S.-listed Chinese companies, including e-commerce majors Alibaba Group Holding Ltd (9988.HK) and JD.com Inc (9618). .HK) for audit inspection. Read more


Officials from the CSRC, which has conducted negotiations with US authorities to resolve the audit dispute, should be present when the PCAOB conducts interviews and collects testimony from audit firm staff, one of four people familiar with the audit process. audit said.

The entire inspection process will take eight to ten weeks, two of the four sources said, in line with comments by US Securities and Exchange Commission (SEC) Chairman Gary Gensler at a meeting with lawmakers last week.

It was unclear whether Chinese officials would be present for each step of the inspection process with PCAOB representatives.

A separate source familiar with the matter said the involvement of Chinese regulators was consistent with how the PCAOB conducts inspections in other parts of the world and that the U.S. watchdog was not paying particular attention. to China.

U.S. regulators have been requesting access to audit documents of U.S.-listed Chinese companies for over a decade, but Beijing is reluctant to allow U.S. regulators to inspect its accounting firms, citing national security concerns.

Despite the audit deal, Chinese legal experts and observers last month warned that they could still clash over how it is interpreted and implemented, with the US side seeking full access to Chinese audit documents without any consultation or input from the Chinese regulatory authorities. Read more

Beijing’s statement on the deal last month, however, stressed that the US watchdog will need to obtain documents through Chinese regulators and involve the Chinese side during interviews and testimony gathering.

PCAOB’s on-site inspections are conducted in the Hong Kong offices of the auditing firms of the selected Chinese companies, two of the sources said.

The PCAOB will spend the first week inspecting auditors’ compliance and internal control systems and will move on to reviewing the audit working documents of selected companies from the second week, they added.

In line with statements from U.S. regulators, PCAOB inspectors can see full audit working documents without any drafting and will adopt view-only procedures for personally identifiable information, the two sources said.

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Referrals from Xie Yu, Julie Zhu, Selena Li in Hong Kong and Michelle Price in Washington; Editing by Sumeet Chatterjee and Edmund Klamann

Our Standards: Thomson Reuters Trust Principles.


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