US and Chinese accounting regulators discuss a possible audit agreement
U.S. accounting regulators are discussing a possible deal with their counterparts in Beijing that could pave the way for U.S. officials to investigate Chinese companies’ audits, according to sources familiar with the matter.
An agreement allowing US public company accounting oversight board officials to enter the audit would help ease the standoff between Washington and Beijing and prevent about 270 Chinese companies from being delisted from the New York exchanges.
In one of the options being discussed as part of a possible protocol, U.S. officials will travel to China and personally inspect some audits after a period of isolation in the country, which has a zero-cue policy, one source said.
PCAOB refuted earlier reports from the Financial Times and Reuters that its employees were already in China, saying they had not traveled there since 2017, adding that “speculation about the final agreement remains premature.”
Tensions have eroded investor confidence in Chinese companies. A senior official at a major Chinese investor said: “This has to be resolved otherwise the US capital market will be closed to Chinese companies for good.”
The move comes a month after Beijing amended some of its audit secrecy rules in an effort to stem the tussle with Washington, which, if not resolved, could remove companies with a combined market capitalization of about $ 2tn by 2024.
E-commerce giant JD.com, tech group Pinduoduo and state-owned oil company China Petroleum and Chemical Corp. were added to the list of companies facing potential delisting this week. The Securities and Exchange Commission began naming companies in March, triggering a three-year countdown to delisting after years of tensions over the issue, and a sharp sell-off in Chinese stocks.
Last month, CSRC vice-president Fang Xinghai said he expected the two regulators to reach a compromise, adding that recent talks with PCAOB were “very smooth”, adding: “We are confident of reaching an agreement in the near future. The uncertainty will soon go away.
His comments came after the CSRC said it would relax privacy laws and prevent its overseas-listed companies from providing sensitive financial information to foreign regulators. Pressure from Washington for access to audit documents was a significant concession, but the new draft rules explicitly barred companies from sharing “state secrets”, leaving some areas of concern.
This week, Goldman Sachs published a report quoting a senior executive at China Moon Strategies Advisors, who said he believed there was a 90 percent chance that China and the United States would make a compromise that would prevent delisting.
“China is waiting until the last minute, but this could be a different time as the market is booming,” the Goldman report said.
The shocking initial public offering of ride-hailing app Didi Chuxing last June added that Chinese companies are “welcome” to raise capital in the US, even after effectively halting dealmaking since Beijing launched its regulatory action when its share prices soared. 90 percent decline.
Amid the tensions, some Chinese companies listed in New York have sought to reduce delisting risk by changing auditors or launching secondary listings in Hong Kong.
This week, KE Holdings, an online estate agent, was the latest to issue shares on the Hong Kong exchange. BeiGene, a biotech group, last month replaced its auditor – EY’s Chinese member firm – with EY in the US in an effort to comply with audit access rules.