China-US deal needed very soon to avoid delistings, SEC's Gensler says
US and China officials must reach an agreement "very soon" over access to audit work papers for Chinese companies to avoid being kicked off American stock exchanges, Securities and Exchange Commission (SEC) chair Gary Gensler said on Wednesday (Jul 27).
Regulators from the 2 countries have been locked in negotiations over granting US auditor watchdogs complete and open access to the work papers of about 200 Chinese companies, including Alibaba Group Holding and JD.com. An American law signed in 2020 could force those companies off the Nasdaq and the New York Stock Exchange as soon as 2024 if inspectors from the Public Company Accounting Oversight Board (PCAOB) don't get access.
"We are not willing to have PCAOB inspectors sent to China and Hong Kong unless there is an agreement on a framework allowing the PCAOB to inspect and investigate audit firms completely," Gensler said at a Wednesday event hosted by the Center for Audit Quality. The SEC oversees the PCAOB.
China's quarantine requirements related to the Covid-19 pandemic and other logistics mean an agreement over how the reviews would occur needs to be wrapped up very soon, he said.
Gensler said the 2024 timeline could also be accelerated to 2023 if US lawmakers pass legislation now under consideration.
The audit-paper inspection requirements for all companies that trade publicly in the US dates back to a 2002 law. Dozens of other countries have permitted the audit inspections, letting American officials interview local accountants and scrutinise the documentation underlying their work.
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China and Hong Kong have refused, citing confidentiality laws and national security concerns.
Auditor independence
During the event, Gensler said in a virtual interview with Capitol Account that he's asked SEC staff, as well as the PCAOB, to determine if rules to prevent conflicts of interest at auditors may need to be updated.
Large accounting firms are under scrutiny for how they ensure that different arms of their business, such as consulting services, don't influence their auditing units. Ernst & Young is considering splitting off its consulting wing to free up both verticals for growth and to avoid conflicts.
Gensler said auditors needed to remain "vigilant" to ensure their non-auditing businesses don't compromise their oversight functions. BLOOMBERG
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