Exclusive China sends regulators to Hong Kong to help US inspection sources

A Chinese national flag flies outside the China Securities Regulatory Commission (CSRC) building on Financial Street in Beijing, China, July 9, 2021. REUTERS/Tingshu Wang

Register now to get free unlimited access to Reuters.com

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

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. Read more

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.

Register now to get free unlimited access to Reuters.com

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 of the CSRC and the Ministry of Finance did not immediately respond to Reuters requests for comment. The PCAOB did not respond to Reuters inquiries sent outside US business hours.

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 data center company GDS Holdings are among the US-listed Chinese firms for audit scrutiny in 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 selected a number of US-listed Chinese companies including major e-commerce giants Alibaba Group Holding Ltd (9988.HK) and JD.com Inc (9618.HK) for audit screening. Read more

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.

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.

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. Read more

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 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.

Register now to get free unlimited access to Reuters.com

(Additional reporting by Shi Yu, Julie Zhou and Selina Lee in Hong Kong, and Michelle Price in Washington.) Editing by Sumit Chatterjee and Edmund Kelman

Our Standards: Thomson Reuters Trust Principles.

Leave a Comment