China says it is ready to work with the United States on an audit deal, with challenges looming

HONG KONG (Reuters) – China’s securities watchdog said on Thursday it is ready to work with its counterparts in the United States to strengthen regulatory cooperation on audits and protect the rights and interests of global investors.

The China Securities Regulatory Commission (CSRC) was commenting a day after a US accounting watchdog said it had found unacceptable shortcomings in audits of US-listed Chinese companies.

“We noted that the US regulator said the shortcomings they found this time were normal for a first-time inspection,” it said in a statement in response to a Reuters request for comment, adding that Beijing would continue to work with the United States.

The US Public Corporate Accounting Oversight Board (PCAOB) released the results of its inspections on Wednesday, after accessing the companies’ auditors’ records under an agreement reached in September last year.

This access, obtained after more than a decade of negotiations with Chinese authorities, has kept nearly 200 China-based public companies including Alibaba (9988.HK) and JD.Com (9618.HK) from potentially launching on US exchanges. .

“The inspection report also did not conclude that audit opinions by the relevant auditors were inappropriate,” CRSC’s statement said, and that it believed the deficiencies found would help audit firms correct their problems and improve quality.

Analysts said the shortcomings found by the US watchdog are unlikely to derail the audit agreement, but it will be difficult to change practices quickly amid continuing tensions between the US and China.

“PCAOB expects rates are generally high and that’s not surprising in the short term,” said Jackson Johnson, a former PCAOB inspector and president of Johnson Global Accountancy, an audit advisory firm based in Nevada, adding that there is a lot of work to be done to improve results ahead of the examination. the next.

Weiheng Chen, a senior partner at law firm Wilson Sonsini, said that although the shortfall rate in PCAOB’s findings was much higher than the average of its reviews, the findings would not lead to a restatement of the company’s financial statements.

“So these shortcomings alone will not cause any stock to be written off.”

The PCAOB’s statement appears to be strongly worded, but the shortcomings were to be expected, said Paul Giles, a professor of accounting at Beijing University of International Studies.

“I suppose most of the issues have already been addressed by the auditors…although politics aren’t supposed to get into that, they obviously do. And if they (the PCAOB) look too accommodating, they’re really going to get a lot of criticism…and accuse them of leniently with China.

Reuters reported in March that the PCAOB had begun a new round of inspections in Hong Kong as part of the deal, a rare bright spot in Sino-American relations at a time when some business leaders have expressed concerns about the world’s decoupling. the two largest economies.

Reporting by the Beijing Newsroom; writing by Xie Yu; Editing by Sumit Chatterjee

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