The U.S. auditing watchdog said on Friday that it had signed an agreement with Chinese regulators to take the first step towards inspections and investigations of accounting firms registered in China and Hong Kong.
After the news came out, Hong Kong’s Hang Seng Technology Index futures surged more than 5%, hitting the daily limit. The Chinese concept stocks listed in the United States also have a bright upward trend.
The Listed Company Accounting Oversight Board (PCAOB) said this is the most detailed and prescriptive agreement the PCAOB has reached with China.
U.S. regulators have long demanded audit documents from U.S.-listed Chinese companies, but Beijing has been reluctant to allow overseas regulators to inspect accounting firms, citing security concerns.
The PCAOB said in a statement that the agreement would allow it to “choose at its own discretion the companies it inspects and investigates, audit engagements and potential violations, without consulting or seeking advice from Chinese authorities.”
The PCAOB added that its inspectors will be able to “view the full audit work file with all the information and let the PCAOB retain the information as needed.”
“The PCAOB has direct access to interviews and testimonies of all persons involved in audits of PCAOB inspections or investigations,” it said.
The China Securities Regulatory Commission said the agreement was an important step in addressing audit issues. In accordance with the laws and regulations of the two countries, the cooperation agreement respects common international practices, and in accordance with the principle of reciprocity and mutual benefit, the two sides have made clear agreements on the supervision, inspection and investigation activities of the relevant accounting firms in cooperation, forming a cooperation framework that complies with the laws and regulations and regulatory requirements of both parties.
The CSRC pointed out that the signing of the cooperation agreement is an important step taken by the regulatory agencies of China and the United States in addressing the issue of common concern of audit supervision cooperation, and has laid a foundation for the two sides to actively, professionally and pragmatically promote cooperation in the next stage. Promoting cross-border audit supervision cooperation in accordance with the law will help to further improve the practice quality of accounting firms, protect the legitimate rights and interests of investors, and will also help create a good international regulatory environment for enterprises to carry out cross-border listing activities in compliance with laws and regulations.
