China and US announce audit cooperation agreement for Chinese companies

China and the United States signed an agreement on Friday to cooperate in overseeing audits, with the participation of the US Public Company Accounting Oversight Board (PCAOB), the Chinese government said in a statement. According to the text, this will allow cooperation in audit oversight and lay the groundwork for both sides to cooperate in a “proactive, professional and practical way”.

The US Securities and Exchange Commission (SEC) also confirmed the news.

According to Beijing’s note, cooperation between countries will help to further improve the quality of practice of accounting firms, as well as protect “investors’ rights and legitimate interests” and create a good international regulatory environment for firms to cross-transact.

The SEC, for its part, says the deal will streamline inspections and investigations by audit offices of companies in China and Hong Kong. He said it was the first time the United States had received “such detailed and specific” commitments from China to allow these investigations and inspections “within American standards.”

It also points out that visits by PCAOP inspectors to Hong Kong for this task will only take place if there is a specific agreement in this regard. The SEC added that those inspectors should be in Hong Kong by mid-September to complete the work, which is expected by the end of the year.

He points out that Friday’s agreement is “a step in the process” and will only make sense if inspectors actually act to fully audit companies in China. Otherwise, about 200 companies would be barred from trading their securities in the US, the SEC added. He argues that access to the world’s largest and most liquid U.S. market is a privilege for foreign issuers, and that U.S. investors should be protected.

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