The PCAOB on Friday took a significant step toward achieving its goal of holding public companies in China and Hong Kong that trade on the U.S. capital markets to the standards already enforced in other countries.
The PCAOB announced it has signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China.
The PCAOB inspects and investigates registered public accounting firms in more than 50 jurisdictions around the world but has been obstructed from carrying out its mandate in mainland China and Hong Kong for more than a decade, according to Friday's news release.
The Holding Foreign Companies Accountable Act of 2020 mandates that, beginning with 2021, after three consecutive years of PCAOB determinations that positions taken by authorities in the People's Republic of China obstructed the PCAOB's ability to inspect and investigate registered public accounting firms in mainland China and Hong Kong completely, the companies audited by those firms would be subject to a trading prohibition on U.S. markets.
PCAOB chair Erica Y. Williams said in her statement announcing Friday's agreement that she has instructed the PCAOB inspection team to prepare to "be on the ground by mid-September so we can put this agreement to the test."
Her statement went on to explain some of the specific access granted in the agreement:
- The PCAOB has sole discretion to select the firms, audit engagements and potential violations it inspects and investigates — without consultation with, nor input from, Chinese authorities.
- 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.
- The PCAOB has direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates.
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.