PCAOB gains ‘complete access’ to audit firms in China

By Bryan Strickland

The PCAOB announced Thursday it has secured "complete access" for the first time to inspect and investigate audit firms in China, consistent with the access granted by other jurisdictions around the world.

In August, the PCAOB and the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China signed a Statement of Protocol to that effect.

At the time of the agreement, PCAOB Chair Erica Y. Williams said the board would "be on the ground by mid-September so we can put this agreement to the test." Monday at the AICPA & CIMA Conference on Current SEC and PCAOB Developments, Williams said the PCAOB soon would release a determination.

"This historic and unprecedented access was only possible because of the leverage Congress created by passing the Holding Foreign Companies Accountable Act. Congress sent a clear message with that legislation that access to U.S. capital markets is a privilege and not a right, and China received that message loud and clear," Williams said Thursday in a news release. "Investors are more protected today because of Congress's leadership, and I want to thank members of the House and the Senate for their ongoing work to hold China accountable.

"I want to be clear: This is the beginning of our work to inspect and investigate firms in China, not the end. The PCAOB is continuing to demand complete access in mainland China and Hong Kong moving forward. Our teams are already making plans to resume regular inspections in early 2023 and beyond, as well as continuing to pursue investigations."

The board made its determination of cooperation after:

1. The PCAOB exercised sole discretion to select the firms, audit engagements, and potential violations it inspected and investigated — without consultation with, nor input from, Chinese authorities.

2. PCAOB inspectors and investigators were able to view complete audit workpapers with all information included, and the PCAOB was able to retain information as needed.

3. The PCAOB had direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspected or investigated.

"This fall's inspections and investigations followed the signing of the Statement of Protocol in August 2022 by the PCAOB, the China Securities Regulatory Commission (CSRC), and China's Ministry of Finance. At the time, I said the proof would be in the pudding," SEC Chair Gary Gensler said in a statement. "Today, we know that the proof was indeed in the pudding, at least in 2022."

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.

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