Us China Audit Agreement

Audit firms that control companies that raise capital in U.S. markets must be registered with PCAOB and meet strict audit standards in the United States and be audited in accordance with the Sarbanes-Oxley Act of 2002. But the PCAOB has not been able to induce the Chinese authorities to accept a joint inspection program, despite more than 13 years irrelevant. Congress passed Sarbanes-Oxley in response to the Enron, WorldCom and other scandals that cost investors $85 billion. Ultimately, the proposed delay in co-audits could lead to a better solution. WASHINGTON (Reuters) – The Trump administration plans to soon strike out a 2013 agreement between U.S. and Chinese audit authorities, a senior State Department official said, a move that could include a broader crackdown on U.S.-listed Chinese companies under fire on U.S. disclosure rules. On May 24, 2013, the Public Company Accounting Oversight Board (“PCAOB” or Board) announced that it had signed a Memorandum of Understanding (MOU) with the Chinese financial market supervisory authorities, which in certain circumstances would allow PCAOB to obtain audits from chinese-based audit firms. The agreement is the result of a nearly two-year effort by U.S. regulators to gain access to audit documents from Chinese companies suspected of having erroneous accounting practices or fraudulent accounts. In theory, the agreement is an important step, as it establishes a framework in which THE PCAOB can request and receive audit documents previously retained because their production would be contrary to Chinese law.

The agreement is also important in that it expressly allows PCAOB to share with the SEC the working papers it receives, subject to certain requirements. But the Mou, which is not binding, is also limited by its own conditions. For example, Chinese regulators may refuse to provide documents in certain circumstances, even if the production would be contrary to Chinese law or contrary to the public interest. In addition, the agreement does not allow PCAOB to conduct on-site inspections of auditors in China, which is an important part of the supervisory function of the Board of Directors. Like most international cooperation agreements, the real test of the effectiveness of the agreement will not be what the agreement says, but how the parties act in the light of their “understanding”. As a result, the U.S. audit authority did not have access to the working papers of Chinese auditors. This has long been an obstacle to the role of supervisory authorities in monitoring the auditors of state-owned enterprises operating here in the United States.

Both the Public Company Accounting Oversight Board and the SEC have failed to reach an agreement with China for years. Why is this an important topic? The United States plans to soon terminate an agreement on monitoring review with China amid concerns about the Asian country`s alleged lack of transparency and the failure to comply with U.S. disclosure requirements, Reuters reported, citing a U.S. State Department official. However, according to the industry, the limitations of the agreement were visible long before.