SEC Director Emphasizes Importance of Chinese Auditor Compliance with PCAOB Requirements
SEC Office of International Affairs Director YJ Fischer underscored that continued trading of Chinese securities on U.S. exchanges will require the resolution of audit access issues.
In remarks before the International Council of Securities Associations Annual General Meeting, Director Fischer explained that the 2021 Holding Foreign Companies Accountable Act ("HFCAA") established a timeline to bring all non-U.S. issuers of listed securities into compliance with the Public Company Accounting Oversight Board ("PCAOB") auditing requirements. China and Hong Kong have yet to meet these HFCAA requirements and if left unresolved, approximately 200 China-based companies will be ineligible to trade on U.S. exchanges beginning in 2023.
Director Fischer said that due to the lack of compliance from Chinese auditors with current U.S. regulations, securities trading with China-based issuers may be halted within the next two years. He highlighted the following critical issues:
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public accounting firms registered with the PCAOB must provide the PCAOB with access to their audit papers without asserting any right to withhold such information due to national security issues;
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Chinese authorities can delist any China-based issuers for those containing information deemed "too sensitive" to comply; and
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any agreement to begin PCAOB audit inspections in the near future will only be the beginning of resolving auditing issues between China-based issuers and the United States.
Director Fischer argued that claims by China and Hong Kong that PCAOB audits would jeopardize their national security does not make sense given that audit paperwork typically includes only general ledgers, schedules of accounts or transactions, organizational charts, investor/ownership information and internal controls over financial reporting.