PCAOB Completes First Inspections of China-based Accounting Firms

The Public Company Accounting Oversight Board ("PCAOB") completed inspections of two public accounting firms based in China. The announcement was significant because it is the first time in history that PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.

In a PCAOB release, Chair Erica Y. Williams said that such access was made possible "because of the leverage Congress created by passing the Holding Foreign Companies Accountable Act."

PCAOB said that it was able to (i) exercise sole discretion in the selection of accounting firms, audit engagements and potential violations inspected, (ii) view complete working papers without redactions and (iii) gain direct access to personnel associated with the audits. Chair Williams said that preliminary findings show numerous deficiencies at the two auditing firms. She noted, however, that such deficiencies are consistent with findings in first-time inspections. She said that PCAOB voted to vacate previous contrary determinations.