U.S. Receives “Full Access” to China Accounting Firms for First Time
The United States is receiving full access to inspect and investigate accounting firms in China for the first time, according to the nation’s top auditor.
The U.S. Public Company Accounting Oversight Board (PCAOB) said on Dec. 15 that it obtained full access to firms in China after years of refusals by the Chinese Communist Party (CCP).
“For the first time in history, the PCAOB has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong,” PCAOB Chair Erica Williams said in a prepared statement.
The announcement means that about 200 Chinese companies, including e-commerce giant Alibaba, will no longer be at risk of being delisted from U.S. stock exchanges. It also opens a new chapter in the struggle between CCP authorities and their Western counterparts over transparency and the national security implications of the communist regime’s connections to U.S. markets.
Washington and Beijing reached a landmark deal in August to settle a long-running dispute over the auditing compliance of U.S.-listed Chinese firms. Authorities in China have long resisted allowing overseas regulators to inspect local accounting firms, citing national security concerns. The deal gives PCAOB the right to fully access Chinese audit working papers with no redactions, the right to take testimony from audit company staff in China, and sole discretion to select which companies it inspects.
Williams said the progress wouldn’t have been possible without the 2020 Holding Foreign Companies Accountable Act, which requires companies publicly listed on U.S. markets to disclose inspection information from foreign jurisdictions or face a ban on trading.
“This historic and unprecedented access was only possible because of the leverage Congress created by passing the Holding Foreign Companies Accountable Act,” she said.
“Investors are more protected today because of Congress’ leadership, and I want to thank Members of the House and the Senate for their ongoing work to hold China accountable.”
Williams said the PCAOB exercised its sole discretion to select firms for audit and selected KPMG Huazhen in China and PricewaterhouseCoopers in Hong Kong.
U.S. officials had gained “good access” to all the information they requested during the seven-week inspection, but also identified “numerous potential deficiencies,” she said.
Williams declined to specify the types of deficiencies but said they were in line with what the audit inspectors have seen in other jurisdictions during first-time inspections.
“Today’s announcement should not be misconstrued in any way as a clean bill of health for firms in mainland China and Hong Kong,” Williams said. “It is a recognition that, for the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them.
“Should PRC [People’s Republic of China] authorities obstruct or otherwise fail to facilitate the PCAOB’s access, in any way and at any point in the future, the Board will act immediately to consider the need to issue a new determination.”
Reuters contributed to this report.
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Andrew Thornebrooke is a reporter for The Epoch Times covering China-related issues with a focus on defense, military affairs, and national security. He holds a master’s in military history from Norwich University.
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