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U.S. regulators won't accept any limitations on audit access to China, according to sources

Image:Reuters Berita 24 English - According to two sources with knowledge of the U.S. agency's thinking, the U.S. public company account...


Berita 24 English - According to two sources with knowledge of the U.S. agency's thinking, the U.S. public company accounting regulator will not tolerate any limitations on its access to the audit files of Chinese companies listed in New York, even in cases when firms have been delisted.

Beijing and Washington are negotiating to address a long-running disagreement over the auditing compliance of Chinese companies with U.S. listings. If the dispute is not resolved, more than 270 Chinese companies risk being delisted from the New York Stock Exchange.

Due to worries over national security, Chinese authorities have historically been reticent to allow foreign regulators to visit local accounting companies.

Delisting Chinese corporations would not bring Beijing in line with U.S. regulations, according to a source familiar with the thinking of the Public Company Accounting Oversight Board (PCAOB), which supervises audits of U.S.-listed companies.

According to the person, the PCAOB must be able to choose which individuals to examine depending on risk. "We would not accept it if the Chinese regulators were to restrict us in any way, as that would prevent us from fulfilling the mandate."

According to sources cited by The Financial Times on Sunday, China is getting ready to categorise Chinese companies that are listed in the United States according to how sensitive their data is, possibly as a concession to the U.S. regulations.

The report was refuted on Monday by the China Securities Regulatory Commission (CSRC).

Because the conversations are confidential, the sources declined to be named.

There are no exceptions or loopholes, according to PCAOB spokesman Kent Bonham: "PCAOB must have full access to audit work materials of any firm it chooses to inspect or investigate."

As we engage with Chinese authorities to establish a deal that satisfies our legal obligation under American law, he continued, "Time is of the importance."

A request for comment from Reuters on Tuesday was not immediately answered by CSRC.

China has previously stated that all parties are dedicated to achieving a deal, despite the fact that the US has been more pessimistic in its assessment.

This month, Gary Gensler, chair of the U.S. Securities and Exchange Commission, which regulates the PCAOB, expressed his "not especially confident" opinion on the likelihood of a compromise being reached.

According to the first source, the primary issue is how much access the PCAOB has to fulfil its duty.

"We cannot agree to the different levels of access that our Chinese counterparts demand. Complete access is required."

According to a second individual acquainted with the PCAOB's thinking, PCAOB inspections and investigations are retrospective, meaning that audited financial statements continue to be under review even after delisting, which may take more than a year.

This person stated that even after being delisted, a corporation may still be required to file SEC documents, such as audited financial statements that are subject to PCAOB scrutiny.

Even though a firm is not listed on a U.S. exchange, it may still be required to file audited financial statements with the SEC if, for instance, it has more than 300 U.S. shareholders or trades securities above a specific threshold off exchange.

The SEC adopted guidelines to delist Chinese companies under the Holding Foreign Companies Accountable Act in December, which ignited the long-simmering oversight dispute. It stated that 273 businesses were in danger.

The agency would need to be able to finish inspections by early November 2022 to fulfil a deadline that might land as early as 2023, a PCAOB official said in May.

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