NEW YORK/SHANGHAI — Investors in U.S.-listed Chinese companies have had plenty of relief after Beijing and Washington signed a lengthy pending audit deal, but legal experts and China watchers say , warned that the two sides could still clash over how the agreement should be interpreted and enforced.
For more than a decade, U.S. regulators have demanded access to the audit documents of Chinese companies listed in the U.S., but the Chinese government, citing national security concerns, said U.S. regulators would I was reluctant to inspect the accounting firm.
But on Friday, the two countries reached a landmark deal that appeared to give the US everything it wanted. The right to testify from staff of audit firms in China and Hong Kong. U.S. SOLE DISCRETION IN SELECTING BUSINESSES TO INSPECT.
Investors said the deal was a big boon for U.S.-listed Chinese companies, but the rally in stocks prompted new risks Monday stemming from concerns over a prolonged rise in global interest rates. suppressed by workarounds.
Legal experts warn investor optimism may be premature, pointing to nuances in both sides’ language as potential source of clashes as deal implementation begins next month is doing.
They noted that it will take some time for the Public Company Accounting Oversight Board (PCAOB), the U.S. audit and oversight body, to test whether China has faithfully adhered to the deal.
“I think it’s important to break the deadlock and reach an agreement on both sides,” said Hung Tran, a senior fellow at the Atlantic Council, a US think tank.
“But what that really means is that it will take some time to see if we can actually review access and processes and audit trails in a way that meets the requirements of US law.
A PCAOB statement on Friday said it would allow full access to U.S. regulators “if adhered to.”
However, Beijing’s statement said that the principle of bilateral cooperation is “equal”, that the US side should obtain documents through Chinese regulators, and that it should involve the Chinese side in coordinating how to take interviews and testimonies. emphasized the need to
The China Securities Regulatory Commission (CSRC) has described the agreement as an important step for investors, companies and both countries, saying that audit issues will only occur if the cooperation “meets the regulatory requirements of both sides”. Said it was expected to be resolved.
There is precedent for the collapse of cooperation between the two sides.
For example, the PCAOB spent significant time and resources negotiating a memorandum of understanding (MOU) on audit enforcement cooperation with Chinese authorities in 2013, but subsequently determined that it was still unable to obtain sufficient information access. indicated in previous official statements.
Lawyers say much will depend on which of the more than 200 U.S.-listed Chinese companies the PCAOB chooses to inspect. Officials with the PCAOB said Friday that they will notify selected companies and begin reviewing audit documents next month, without naming them.
A PCAOB spokesperson told Reuters the PCAOB selects companies based on risk factors such as size and sector, and no company can expect preferential treatment, citing comments from officials Friday. did.
Conflict could quickly erupt if the PCAOB chose a well-known company with a lot of sensitive data, but the PCAOB said that given China is under heavy domestic political Lawyers say they are unlikely to tolerate backlash.
Marcia Ellis, an attorney at Hong Kong-based Morrison & Foerster, said access to the audit documents required for the transaction remains in tension with China’s strict data security regulations.
A spokesman for the U.S. Securities and Exchange Commission, which oversees the audit oversight body, declined to comment, but the commission’s chairman, Gary Genslery, said on Friday that only if U.S. officials get the promised access. He warned that the deal made sense.
The CSRC did not immediately respond to Reuters’ request for comment.
All selected companies and audit firms must be fully compliant for the PCAOB to conclude that China as a jurisdiction is compliant.
“The PCAOB will not cut corners when implementing this agreement.
“We know that both the SEC and Congress want assurances that the PCAOB will have the same access to information when inspecting Chinese audit firms as it does to U.S. audit firms,” the current law states. Office Miller & Chevalier.
Morrison & Forster’s Ellis said that given the underlying conflict over access to sensitive data, even if the deal succeeds, China could move some companies to the U.S. in the future. He said it was likely to keep it from going public.
“Even if the PCAOB issue is resolved, China-headquartered companies with sensitive data that have not yet been listed will still support listing in Hong Kong,” she said. (Additional reporting by her Michelle Price in Washington and her Kane Wu in Hong Kong; writing by Michelle Price; editing by Sumeet Chatterjee & Shri Navaratnam)