Exclusive – China sends regulators to Hong Kong to help US inspect scrutiny – sources

Exclusive – China sends regulators to Hong Kong to help US inspect scrutiny – sources

Written by Xie Yu, Julie Zhu, and Selena Li

HONG KONG (Reuters) – Beijing has sent a team of regulatory officials to Hong Kong to help the U.S. watchdog with on-site audit inspections of Chinese companies, as part of a landmark deal between the two countries, four people familiar with the matter said.

A Sino-US agreement last month allows US regulators, for the first time, to inspect China-based accounting firms that audit New York-listed companies, a major step toward resolving an audit dispute that has threatened to take off more than 200 Chinese firms from the United States. exchanges.

Three people said about 10 officials from the China Securities Regulatory Commission (CSRC) and the Ministry of Finance (MOF) arrived in Hong Kong and joined the audit examination, which began on Monday.

The four people said officials would assist a team of inspectors from the Public Company Accountability Oversight Board (PCAOB), the US audit watchdog, who are in Hong Kong to conduct the on-site inspection.

All sources declined to publish their names due to the sensitivity of the topic.

Representatives from CSRC and the Ministry of Finance did not immediately respond to Reuters requests for comment.

A PCAOB spokesperson declined to comment on Thursday. However, in a speech Thursday, PCAOB President Erica Williams said agency officials had arrived in Hong Kong to begin inspections.

“PCAOB has sole discretion to select companies, audits and potential violations that it inspects and investigates – without consulting or obtaining with Chinese authorities,” she said.

As with all inspections, they will consider factors, including audits of selected firms and the audit firms’ overall quality control systems.

READ ALSO :   The United States urges China to step up response to the risks of accumulated debt in the world

The gathering of US and Chinese officials together in Hong Kong represents a major step forward in what was expected to be a fraught process to implement the audit deal, the most detailed agreement the PCAOB has reached with China.

State-owned China Southern Airlines and state-owned GDS Holdings (NASDAQ πŸ™‚ are among the US-listed Chinese companies for scrutiny of the Asian financial hub, two separate sources said.

China Southern Airlines and GDS did not respond to requests for comment.

Reuters reported last month that US regulators have picked a number of Chinese companies listed in the US, including major e-commerce firms. Ali Baba (NYSE: Group Holding Ltd and JD (NASDAQ :)). com Inc for audit examination.

full access

Officials from the CSRC, which has been leading negotiations with US authorities to resolve the audit dispute, are expected to be present when PCAOB interviews and testifies for audit firm employees, one of the four people familiar with the audit. He said.

Two of the four sources said the entire inspection process would last eight to 10 weeks, in line with comments from US Securities and Exchange Commission Chairman Gary Gensler at a meeting with lawmakers last week. However, on Thursday, Williams said the timetable ultimately depends on the level of China’s cooperation.

It was not clear if Chinese officials would attend every step of the inspection process with PCAOB representatives.

A separate source familiar with the matter said that the interference of Chinese regulators was consistent with the way PCAOB conducts inspections elsewhere around the world and that the US watchdog does not give China any special consideration.

READ ALSO :   Fed policy makers are pressing ahead with the fight against inflation, even as markets are turbulent

US regulators have demanded for more than a decade access to audit papers of US-listed Chinese companies, but Beijing has been reluctant to allow US regulators to inspect accounting firms, citing national security concerns.

Despite the audit deal, Chinese legal experts and observers warned last month that they could still disagree on how to interpret and enforce it, as the US side seeks full access to Chinese audit papers without any advice or input from Chinese regulators.

However, Beijing’s statement on the deal last month stressed that the US watchdog will have to obtain documentation through Chinese regulators, and must involve the Chinese side during interviews and certification.

Two of the sources said on-site inspections by PCAOB are taking place in the Hong Kong offices of selected Chinese corporate audit firms.

They added that the PCAOB will spend the first week examining the compliance of auditors and internal control systems and move to review the audit working papers of the selected firms from the second week.

In line with US regulators’ statements, PCAOB inspectors can see full audit worksheets without any redactions, and will adopt show-only procedures for personally identifiable information, the two sources said.

Newsletter Updates

Enter your email address below to subscribe to our newsletter