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China sends regulators to Hong Kong to assist US audit inspection: Reuters

September 23, 2022 11:28 pm

Beijing has dispatched a team of regulatory officials to Hong Kong to aid the US audit watchdog in conducting onsite audit inspections of Chinese companies, Reuters reported, citing sources familiar with the matter.

According to the report, about 10 officials from the China Securities Regulatory Commission (CSRC) and the Ministry of Finance (MOF) have arrived in Hong Kong and joined the audit inspection, which started on Monday.

Chinese officials will help a team of inspectors from the US audit regulator, the Public Company Accounting Oversight Board (PCAOB), who are in Hong Kong for the onsite inspection.

When the PCAOB interviews and takes testimony from the audit firms' staff, officials from the CSRC are likely to be present.

According to the sources, the whole inspection process will take eight to ten weeks, which is consistent with comments made by US Securities and Exchange Commission (SEC) Chairman Gary Gensler last week during a meeting with lawmakers.

PCAOB's onsite inspections are being conducted in the Hong Kong offices of the selected Chinese companies' audit firms. The regulator will inspect auditors' compliance and internal control systems in the first week, and will review audit working papers of selected companies from the second week.

This is a major step forward in untangling China and the US's long-standing audit dispute. PCAOB have been demanding complete access to audit working papers of US-listed Chinese companies, but Beijing have refused to do so, citing data security concerns.

Therefore, SEC has added around 200 Chinese companies to its delisting watchlist, including Alibaba, JD.com, Pinduoduo, Bilibili, NIO and more. If these firms failed to meet the audit requirements, they could be kicked off US exchanges as soon as 2024.

In August, the two sides finally reached an agreement that would allow US accounting officials to visit Hong Kong to review the audit records of US-listed Chinese companies.

Reuters reported last month that US regulators had picked a number of US-listed Chinese companies including e-commerce majors Alibaba and JD.com for audit inspection.

Citing legal experts and China observers, Reuters said that the two sides could still clash over how to interpret and enforce the agreement, with the US side requesting full access to Chinese audit materials without any engagement or input from Chinese regulators.