US to get access to documents of Chinese accounting firms
25 May 2013
The US will be able to access documents from Chinese accounting firms, China announced yesterday. The announcement clears the way for the US Public Company Accounting Oversight Board to see audit records and other documents held by Chinese audit firms. The issue has been a sore point in business relations between the two countries after US insistence on greater financial disclosure by Chinese firms that trade on US exchanges, following a spate of scandals.
However, the agreement, announced yesterday would not give the US audit-firm regulator the degree of oversight it sought, but could help it investigate the auditors of US-listed Chinese companies it suspected of fraud.
Recent years have seen a spate of accounting irregularities at dozens of firms from China - the largest source of listings from outside the US leave investors billions of dollars out of pocket. However, US regulators have had a hard time probing suspected cases of fraud or even imposing safeguards against it happening again.
The US Securities and Exchange Commission, has not been able proceed with such cases, thanks to Bejing's reluctance to let Chinese auditors including local branches of global accounting firms share documents with US authorities. According to the auditors handing over documents would breach sate secret rules.
James Doty, PCAOB chairman said, the agreement with China was an important step towards cross-border enforcement co-operation that was necessary to protect the interests of investors in US capital markets.
The agreement was hailed as a breakthrough by Chinese regulators.
Tong Daochi, head of the international department of the China Securities Regulatory Commission said, the deal would clear the roadblock for overseas listing of outstanding, legally compliant Chinese firms.
The pact, which came into effect on 10 May, only partially satisfied US demands and though PCAOB would be able to obtain audit documents in enforcement cases against auditors, but it would remain barred from conducting on-the-ground inspections of Chinese auditors.
According to Doty, the PCAOB would continue to push for an agreement on inspections of China-based auditing firms registered in the US.
Tong, however said the US request for long-distance supervision, was something that China could not accept.
According to analysts, Chinese companies listed in the US numbering over 400 have long existed in a grey area, with neither US nor Chinese regulators monitoring them closely, which has been exploited by some companies.
Tong said he hoped the deal would see an improvement in the standing of US-listed Chinese companies.