In an agreement revealed today, US Public Company Accounting Oversight Board is granted permission to access the records held by Chinese accounting firms.
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The deal will prove beneficial to calm down the straining relations between the two economic giants, which could have resulted in the delisting of many Chinese companies from US stock exchanges.
How it started
The dispute gained momentum when after many scandals concerning Chinese companies listed on the US market, regulators tried to intervene by monitoring the audits, only to be stopped by Chinese regulators saying local laws do not allow access to Chinese audits to foreign regulators.
There are about more than 400 Chinese companies listed on US exchanges. These firms have long been enjoying the benefits of not being closely monitored by US and Chinese regulators.
The situation gained grounds when short-sellers such as Muddy Waters accused many Chinese companies of fraud, resulting in numerous high-profile bankruptcies. This forced US regulators to step in and investigate the root cause. This led to the massive fall in the share prices of many Chinese companies ultimately resulting in taking the company private. The investors with mainland bank backing gained the most as they acquired such companies at cheap valuations.
Comments from both sides
PCAOB chairman, James Doty said that the agreement will prove a potential “step towards cross-border enforcement co-operation” that is required to safeguard the “interests of investors in US capital markets.”
The deal was also welcomed by Chinese regulators. Tong Daochi, head of the international department of the China Securities Regulatory Commission told that the deal will clear the path for the overseas listing of the “outstanding, legally compliant Chinese firm’s Chinese firms.”
Deal, a part success
The agreement, which came into effect on May 10, was only a part success on the part of PCAOB. As the regulator is only allowed to carry investigations in enforcement cases against auditors and is still not permitted to carry on-the-ground inspections of Chinese auditors.
Mr Doty told that the board will push for its demand on inspections of China-based auditing firms registered in the US.
However, Mr Tong indicated that this point is contentious and may not be granted by Chinese authorities. “As for the US request for long-distance supervision, this is something that China cannot accept,” he said.