Delisting of Chinese companies from US stock market: US-China agreement allows audit of firms in mainland China and Hong Kong | The Financial Express

Delisting of Chinese companies from US stock market: US-China agreement allows audit of firms in mainland China and Hong Kong

The agreement grants the PCAOB complete access to the audit work papers, audit personnel, and other information that needs to be inspected and investigated.

Delisting of Chinese companies from US stock market: US-China agreement allows audit of firms in mainland China and Hong Kong
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.

There is good news for investors holding securities of Chinese companies listed on the New York Stock Exchange (NYSE). There were apprehensions about the delisting of Chinese companies from the US stock market but now that risk seems to have reduced. Since March 2022, the SEC has been reportedly been calling out Chinese companies listed on NYSE for failing to adhere to US laws. The latest on the delisting of Chinese companies is that negotiations between Beijing and Washington are underway to prevent the delisting of companies in New York.

Public Company Accounting Oversight Board (PCAOB) signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S. Law.

“Under terms of the new agreement, the U.S. inspectors could see complete audit work papers of Chinese companies with no redactions. This is big news for investors. Those who want to build long-term wealth should be less emotionally reactive and keep an open mind on the opportunities in China,” says Nigel Green, CEO, deVere Group.

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This is perhaps, the first step toward opening access for the PCAOB. The agreement grants the PCAOB complete access to the audit work papers, audit personnel, and other information that needs to be inspected and investigated of any firm, with no loopholes and no exceptions. PCAOB inspection team is expected to finalize their preparations to be on the ground by mid-September so as to put the agreement to the test.

The Statement of Protocol grants the PCAOB complete access in 3 important ways:

1. 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.

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

3. 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.

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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.

The U.S. Holding Foreign Companies Accountable Act (HFCAA) went into effect in late 2020. Under the HFCAA, if American regulators are unable to evaluate business audits for three years in a row, it authorizes the U.S. Securities and Exchange Commission to delist Chinese companies from American markets. This means, time is running out to avoid a 2024 deadline set by Congress for delisting non-compliant companies from the US stock market.

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