President Trump Directs Working Group to Address Chinese Compliance with U.S. Audit Standards

Steven Lofchie Commentary by Steven Lofchie

President Donald J. Trump directed the President's Working Group on Financial Markets ("PWG") to provide recommendations that address Chinese companies' audit failures. In a "Memorandum on Protecting United States Investors from Significant Risks from Chinese Companies," the President directed PWG to submit a report that includes recommendations for:

  • the executive branch, as to how to protect investors from the Chinese government's failure to allow Public Company Accounting and Oversight Board ("PCAOB") registered audit firms to comply with U.S. federal securities laws;

  • the SEC or PCAOB, as to how to address PCAOB-registered audit firms' failure to (i) provide audit working papers or (ii) comply otherwise with U.S. federal securities laws; and

  • Federal agencies, as to any other necessary steps to protect investors in Chinese companies, or companies based in other countries that obstruct compliance with U.S. securities law requirements.

The report must be submitted within 60 days.

Commentary

The President's memorandum is another step in a ratcheted dispute with China. It is an important one. The SEC and PCAOB have long sought greater transparency from Chinese companies in order to protect investors and level the playing field. It would be hard to imagine PWG coming back with a recommendation to do nothing, particularly as certain SEC Commissioners have just come out with a series of statements singling out disclosure and misstatement issues as to Chinese issuers. See, e.g., SEC Commissioners Raise Concerns about Emerging Market Risk and ESG Disclosures (particularly the statements of Commissioner Peirce); SEC Identifies Investment Risks Concerning Emerging Markets.

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