Pact enables US, Chinese regulators to co-operate on enforcement


By Ken Tysiac

The US Public Company Accounting Oversight Board (PCAOB) has entered into a much-sought enforcement co-operation agreement with Chinese regulators.

A memorandum of understanding announced Friday creates a co-operative framework between the PCAOB and the China Securities Regulatory Commission (CSRC) and the Ministry of Finance (MOF).

The agreement does not allow for cross-border inspections, but it establishes a mechanism for producing and exchanging audit documents relevant to investigations in both countries’ jurisdictions.

Under the agreement, the PCAOB and the Chinese regulators will be able to request and receive from one another assistance in obtaining documents and information to aid them in their investigative duties.

The agreement is important because the PCAOB and the US Securities and Exchange Commission (SEC) have expressed frustration with their inability to review audit work performed for Chinese clients. Chinese law has been cited as a reason for audit firms’ refusal to share audit documents for Chinese clients with the PCAOB.

SEC Commissioner Luis Aguilar said in December at the American Institute of CPAs Conference on Current SEC and PCAOB Developments that the problem needed to be resolved to protect investors and promote capital formation.

The agreement announced Friday is one step in that process, and the PCAOB is involved in continuing negotiations with the CSRC and MOF to permit joint inspections in China of audit firms that are registered with the PCAOB and audit Chinese companies that trade on US exchanges.

“This agreement with China is an important step toward cross-border enforcement co-operation that is necessary to protect the interests of investors in US capital markets,” PCAOB Chairman James Doty said in a news release. “We look forward to continued progress with our Chinese counterparts to reach an agreement on cross-border inspections of PCAOB-registered firms as well.”

The PCAOB has agreements for joint inspections with regulators in six EU states, including the UK and Germany, as well as several non-European regulators in North America, the Middle East, Asia and Australia.

About 47 audit firms in China are registered with the PCAOB.

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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