A recent Wall Street Journal report reveals that several U.S. accounting firms are helping Chinese companies comply with the Holding Foreign Companies Accountable Act to avoid being delisted from U.S. stock markets.
“To protect investors and to carry out the (Public Company Accounting Oversight Board) PCAOB’s mandate, our inspectors and investigators need consistent access across all jurisdictions to the audit work performed for public companies in U.S. capital markets,” PCAOB Acting Chairperson Duane M. DesParte said in a December press release.
The act, signed by former President Trump in 2020, requires the businesses to provide U.S. regulators with access to a foreign company's financial documents for three years if they want to trade securities in the United States, WSJ reported. Over 200 Chinese companies are listed on U.S. exchanges.
“It is ultimately up to U.S. regulators to decide if these arrangements will be enough to prevent the Chinese companies from being delisted,” the WSJ article says.
As a result, Chinese companies are hiring U.S. registered accounting firms as their primary auditor as a means to be in compliance with the act. Regulators can then have access to the audit records for the accounting firm's clients.
The main accounting firm assumes responsibility for the auditing and signs off on the financial documents. U.S. regulators have to decide if this arrangement is adequate to prevent Chinese companies from being delisted.
At least two companies, Canada's Tim Horton franchises in China and biotechnology company BeiGene Ltd, have come forth as companies who have hired U.S.-based accounting firms as their principal auditors to prevent them from being delisted from the U.S. stock exchanges.
WSJ also reveals that the PCAOB has had difficulty accessing accounting firms in China, due to Chinese government policy preventing companies from sharing financial information to foreigners.
However, in recent news, the Securities and Exchange Commission, the PCAOB and the China Securities Regulatory Commission have agreed to work together to allow certain Chinese companies, who China believes to be low risk with containing sensitive national security information, to facilitate inspections by the PCAOB.
"We are confident in the steps we have taken, and believe we are on a pathway to comply with the HFCAA," BeiGene said in a statement. "Ernst & Young Hua Ming will audit BeiGene’s financial statements that will be filed with the Shanghai Stock Exchange, while Ernst & Young in Hong Kong will handle the company’s financial report to the city’s bourse."