The head of the US Securities and Exchange Commission (SEC) said he will not send inspectors to China (including Hong Kong) before the US and China have a final agreement that ensures unfettered access to audit materials.
Speaking to a conference of accountants, SEC chair Gary Gensler said the Public Company Accounting Oversight Board (PCAOB) would need “specificity and accountability” in audits of foreign companies listed on US exchanges.
“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.
The PCAOB was established in July 2002 in the wake of massive accounting scandals to enforce certain provisions in the Sarbanes-Oxley Act and is overseen by the SEC.
The PCAOB’s job is to audit the accounting firms that sign off on listed companies’ books.
After Sarbanes-Oxley and the creation of the PCAOB, foreign companies listed in the US either delisted or took steps to comply with the new regulations – except Chinese companies, which have done neither.
Washington and Beijing have been in talks for months to resolve the two-decades old dispute. Already, more than 120 Chinese companies listed in the US have been added to a list of companies at risk of delisting for failing to comply with audit rules.
China has resisted giving US auditors full access to the information they say they need to comply with the law, citing national security.
Gensler also said he has asked the PCAOB to consider adding updates for auditor independence standards to its agenda, citing concerns around investor protections.
“I look forward to ensuring key investor protections in our markets — with China-based issuers, if the law is followed; or without China-based issuers, if it is not,” Gensler said.
- Reuters, with editing by Neal McGrath