China Info Access Problem Continues

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Despite the Public Company Accounting Oversight Board’s having arranged cooperative agreements with foreign regulators to share inspection results, it has not been able to inspect the audit work and practices of PCAOB-registered auditing firms in China with respect to their audit work of US-listed companies with operations in China. On December 7, SEC Chairman Jay Clayton, SEC Chief Accountant Wes Bricker and PCAOB Chair William D. Duhnke, III, released a joint statement that announced the PCAOB is facing obstacles in inspecting the principal auditor’s work for 224 US-listed companies (with $1.8 trillion combined market capitalization).

While there are information barriers in multiple jurisdictions, the SEC and PCAOB leaders state that they believe the resolution of issues with China are the most significant to investors. They observe that despite the SEC and PCAOB having sought constructive dialogues with Chinese officials over recent years, they have not made satisfactory progress. The statement concludes: ”…we note that, depending on various facts and circumstances, including company-specific considerations, if significant information barriers persist, remedial actions involving US-listed companies may be necessary or appropriate. In the past, remedial measures have included, as examples, requiring affected companies to make additional disclosures and placing additional restrictions on new securities issuances.”