US, China sign agreement to investigate public firms

The move comes after Chinese companies were delisted from the US stock market amid concerns of security threats.

The Public Company Accounting Oversight Board (PCAOB) signed an agreement with Chinese authorities, taking the first step toward complete access for PCAOB to select, inspect and investigate in China.

The PCAOB is a non-profit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

PCAOB Chair Erica Y Williams underscored agreement is just the first step and said that PCAOB must now test it before making a December determination.

"Today, I directed the PCAOB inspection team to finalize their preparations to be on the ground by mid-September so we can put this agreement to the test," said Williams.

Williams released the following statement today after the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China.

"On paper, the agreement signed today grants the PCAOB complete access to the audit work papers, audit personnel, and other information we need to inspect and investigate any firm we choose, with no loopholes and no exceptions. But the real test will be whether the words agreed to on paper translate into complete access in practice," said Williams.

"The US Congress sent a strong message with the passage of the Holding Foreign Companies Accountable Act that access to the US capital markets is a privilege, not a right. The PCAOB has been working to execute our mandate under the law," added Williams.

The PCAOB has sole discretion to select the firms, audit engagements and potential violations it inspects and investigates - without consultation with, nor input from, Chinese authorities.

"As part of our ongoing efforts, this morning, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China - the first step toward opening access for the PCAOB to inspect and investigate completely registered public accounting firms in mainland China and Hong Kong," said Williams.

Procedures are in place for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed.

The PCAOB has direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates.

The PCAOB inspects and investigates registered public accounting firms in more than 50 jurisdictions around the world, consistent with its mandate under the Sarbanes-Oxley Act.

But, for more than a decade, the PCAOB's access to inspect and investigate registered public accounting firms in mainland China and Hong Kong has been obstructed.

In 2020, Congress passed the Holding Foreign Companies Accountable Act (HFCAA). Under the HFCAA, beginning with 2021, after three consecutive years of PCAOB determinations that positions taken by authorities in the People's Republic of China (PRC) obstructed the PCAOB's ability to inspect and investigate registered public accounting firms in mainland China and Hong Kong completely, the companies audited by those firms would be subject to a trading prohibition on US markets.

In 2021, the PCAOB made determinations that the positions taken by PRC authorities prevented the PCAOB from inspecting and investigating in mainland China and Hong Kong completely. (ANI)