U.S.-Listed Chinese Firms Get A Review

U.S. officials have begun scrutinizing audits conducted in China, starting a process that will take many months and determine whether companies like Yum China and Alibaba can continue to trade on American stock exchanges. The U.S. audit watchdog will be able to determine by the end of this year whether China is upholding a historic agreement to grant U.S. accounting inspectors complete access to audit working papers of Chinese companies listed on the New York Stock Exchange.

  • The inspection is scheduled to last 8 to 10 weeks in Hong Kong
  • According to PCAOB (the U.S. Public Company Accounting Oversight Board) records, audit firms include the Hong Kong division of PricewaterhouseCoopers, as well as the China-based divisions of KPMG, PwC, and Deloitte

Chinese And U.S.-based Auditors

According to people familiar with the situation, representatives from the China Securities Regulatory Commission and China's Ministry of Finance are also on the ground coordinating and supporting the inspection. According to Jackson Johnson, president of Johnson Global Accountancy and a former PCAOB inspector, representatives from both nations frequently sit together in conference rooms to watch inspection procedures and guarantee inspectors can work without interruption.

  • The company's internal controls, revenue-recognition guidelines, and remote auditing practices will normally be discussed with engagement partners of audit firms, who oversee the audit process and approve the audit report

Fate Of Chinese Companies Still Unsure

According to two people with knowledge of the situation, the PCAOB would initially review the audits of a small number of Chinese companies but may eventually scrutinize as many as 20. The agency did not identify the firms but stated that it would choose Chinese company audits to scrutinize based on risk indicators like size and sector.

  • The agreement is simply a "first step," according to US officials, in their strategy to stop the sweeping delisting of Chinese companies from US exchanges

"Voluntarily delisting is not an escape hatch for avoiding PCAOB scrutiny,[...] Our inspections and investigations are retrospective. If a company delists this year, we still need to know whether wrongdoing occurred in previous years." PCAOB Chairwoman Erica Y. Williams

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

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