Unique-China sends regulators to Hong Kong to help U.S. audit inspection -sources By Reuters

© Reuters. FILE PHOTO: A Chinese language nationwide flag flutters outdoors the China Securities Regulatory Fee (CSRC) constructing on the Monetary Avenue in Beijing, China July 9, 2021. REUTERS/Tingshu Wang

By Xie Yu, Julie Zhu and Selena Li

HONG KONG (Reuters) – Beijing has despatched a workforce of regulatory officers to Hong Kong to help the U.S. audit watchdog with onsite audit inspections involving Chinese language corporations, 4 folks accustomed to the matter stated, as a part of a landmark deal between the 2 international locations.

A China-U.S. settlement final month permits U.S. regulators, for the primary time, to examine China-based accounting corporations that audit New York-listed corporations, a serious step in direction of resolving an audit dispute that threatened besides greater than 200 Chinese language corporations from U.S. exchanges.

About 10 officers from the China Securities Regulatory Fee (CSRC) and the Ministry of Finance (MOF) have arrived in Hong Kong and joined the audit inspection, which began on Monday, three of the folks stated.

The officers will help a workforce of inspectors from the Public Firm Accounting Oversight Board (PCAOB), the U.S. audit watchdog, who’re in Hong Kong for the onsite inspection, the 4 folks stated.

All the sources declined to be named because of the sensitivity of the matter.

Representatives at CSRC and MOF didn’t instantly reply to Reuters requests for remark.

A spokesperson for the PCAOB declined to touch upon Thursday. Nonetheless, in a speech on Thursday, PCAOB chair Erica Williams stated company officers had arrived in Hong Kong to start the inspections.

“The PCAOB has sole discretion to pick the corporations, audit engagements and potential violations it inspects and investigates – with out session with, nor enter from, Chinese language authorities,” she stated.

As with all inspections, they may take a look at elements, together with the audits of the chosen corporations and the general high quality management programs of the audit corporations.

The gathering of U.S. and Chinese language officers collectively in Hong Kong marks a serious step ahead in what was anticipated to be a fraught course of implementing the audit deal, probably the most detailed settlement the PCAOB has ever reached with China.

State-owned China Southern Airways and information centre firm GDS Holdings (NASDAQ:) are among the many U.S.-listed Chinese language corporations for audit inspection within the Asian monetary hub, two separate sources stated.

China Southern Airways and GDS didn’t reply to requests for remark.

Reuters reported final month that U.S. regulators had picked quite a few U.S.-listed Chinese language corporations together with e-commerce majors Alibaba (NYSE:) Group Holding Ltd and JD (NASDAQ:).com Inc for audit inspection.

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Officers from the CSRC, which has been main negotiations with U.S. authorities to resolve the audit dispute, are anticipated to be current when the PCAOB conducts interviews with and takes testimony from the audit corporations’ employees, one of many 4 folks accustomed to the audit course of stated.

The entire inspection course of will final about eight to 10 weeks, stated two of the 4 sources, in keeping with feedback by U.S. Securities and Trade Fee (SEC) Chairman Gary Gensler in a gathering with lawmakers final week. Williams stated on Thursday, nonetheless, that the timeline finally relied on China’s stage of cooperation.

It was not clear whether or not the Chinese language officers could be current for each step of the inspection course of with PCAOB representatives.

A separate supply accustomed to the matter stated that involvement by the Chinese language regulators was in line with the best way the PCAOB conducts inspections elsewhere all over the world and that the U.S. watchdog was not giving China any particular consideration.

U.S. regulators have for greater than a decade demanded entry to audit papers of U.S.-listed Chinese language corporations, however Beijing has been reluctant to let U.S. regulators examine its accounting corporations, citing nationwide safety issues.

Regardless of the audit deal, authorized specialists and China watchers final month warned they might nonetheless conflict over how it’s interpreted and carried out, with the U.S. facet in search of full entry to Chinese language audit papers with none session or enter from Chinese language regulators.

Beijing’s assertion on the deal final month, nonetheless, emphasised that the U.S. watchdog should acquire paperwork by way of the Chinese language regulators, and should contain the China facet throughout interviews and testimony taking.

The onsite inspections by the PCAOB are being carried out within the Hong Kong places of work of the chosen Chinese language corporations’ audit corporations, stated two of the sources.

The PCAOB will spend the primary week inspecting the auditors’ compliance and inside management programs and transfer to assessment the audit working papers of chosen corporations from the second week, they added.

In keeping with the U.S. regulators’ statements, the PCAOB inspectors can see full audit work papers with none redactions, and they’ll undertake view-only procedures for personally identifiable data, the 2 sources stated.