Washington and Beijing recently reached a preliminary agreement to allow American officials to review audit documents of businesses in China that trade in the United States. This is a massive first step toward avoiding the delisting of around 200 firms in New York. According to a statement made by the U.S. and Chinese regulators made on Friday, China will allow the Public Company Accounting Oversight Board (PCAOB) inspectors to access audit work papers and personnel.
Monumental Move
This agreement makes major headway as it will resolve a decade-long dispute between the two superpower countries surrounding access to audit documents. China and Hong Kong are the only two jurisdictions in the world that have yet to allow the PCAOB to inspect their audit documents. Their officials claim the reasoning is due to national security and confidentiality concerns. This agreement marks a rare concession from the Beijing jurisdiction, which has repeatedly vowed to strengthen market confidence while balancing national security concerns with the needs of businesses.
“This agreement marks the first time we have received such detailed and specific commitments from China that they would allow PCAOB inspections and investigations meeting US standards,” Securities and Exchange Commission Chair Gary Gensler said in a statement.
Inspection isn’t Immediate
This, however, doesn’t mean the PCAOB can get inspectors on the group right away. This agreement just marks the first step into making that possible, it could be months before a determination on compliance is made. These talks accelerated after state-owned companies like China Life Insurance Co., PetroChina Co., and China Petroleum and Chemical Corp. said earlier this August that they planned to delist from the US stock exchange. Firms such as Alibaba however, are seeking primary listings in Hong Kong.
Wrap Up
This is a big move considering these final two Chinese jurisdictions are the only ones across the world that aren’t allowing these inspections; which may insinuate something underlying is going on. The results of this inspection remain to be seen but we will keep an eye out for any news that surfaces in the coming months.