So why now with this, has attention of the SEC again, the PCAOB is talking about this again, Congress involved at this point. So for example, my mobile phone bill is technically a state secret. China has a very expansive definition of state secrets such that basically any transaction with a state owned enterprise in China is considered to be a state secret. And then secondly, there was a concern that the audit work papers might contain state secret. It’s considered to be an infringement of China’s national sovereignty.
One, it would allow a foreign regulator to enforce foreign law on Chinese soil against Chinese people. regulator would cause two harms to China. But in general, China has taken the position that the disclosure of audit working papers to a U.S. The PCAOB tried to do inspections with China for a number of years and has had some breakthroughs to allow for certain types of cooperation. market was better specialized in the kind of technology companies that we have here.Īnd the US had more relaxed standards for listing then did Hong Kong or mainland China. They tended to list in China rather than list in Hong Kong, or they listed in the United States instead of listing in Hong Kong or in China because the U.S. capital markets as their primary capital market. China was the biggest holdout and the biggest because Chinese private companies have for almost 20 years used the U.S. Many countries after Sarbanes-Oxley came into effect, initially resisted allowing the PCAOB to come to their countries to inspect citing national sovereignty concerns or privacy concerns. listed companies or play a significant role in the audit of U.S. And that includes foreign accounting firms that audit U.S. What Sarbanes-Oxley required is that all accounting firms be inspected by the PCAOB at least every three years.
Both the Public Company Accounting Oversight Board and the SEC have been chipping away at this trying to reach an agreement with China for years now without much success. This has been a long standing barrier to the regulators watchdog role, which is to keep tabs on the auditors of public companies trading here in the US. audit regulator has not been able to access the work papers of Chinese auditors. Paul, thank you for joining me today to talk about China and auditing. So what’s being done? I spoke with Paul Gillis who teaches at Peking University School of Management in Beijing about why this issue has resurfaced suddenly and what’s likely to happen next.
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Some members of Congress are worried to and introduced legislation in June that would crack down on China if Beijing doesn’t let U.S. The Securities and Exchange Commission raised concerns about the PCAOB’s lack of access in China and the possible risks last year. It was born out of the Enron and WorldCom accounting scandals regulated the audits of publicly traded companies in the US and created the Public Company Accounting Oversight Board to serve as the industry’s watchdog, but the board isn’t able to inspect the work of auditors based in China and that lack of oversight increases the chance of fraud and could put investors money at risk. More than 200 Chinese companies are registered to trade in the US but unlike domestic companies, these companies are able to skirt a key investor protection in U.S.
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