The U.S. and China have taken a first step to keep Chinese stocks from being removed from stock exchanges in the US.
Analysts said that there needs to be a smooth on-ground inspection in China by the U.S.
According to a professor of law at New York University, many implementation details can only be figured out by the auditing firms and the ministry of finance.
All audit work papers requested by the PCAOB must be made available to them after the PCAOB's inspectors arrive in Hong Kong in mid- September.
The actual information on companies gathered by accounting firms is different from the audit work paper.
According to the PCAOB website, the work papers record the audit procedure, tests, gathered information and conclusions. The level of highly sensitive information that would be included in the work papers is not known.
The ability of the U.S. to inspect work papers for Chinese companies listed in the U.S. has been at odds for years. The threat that the Chinese companies might need to delist from the U.S. stock exchanges has increased because of U.S. political and legal developments.
The PCAOB and China Securities Regulatory Commission signed a cooperation agreement that paved the way for U.S. audits of audit firms in China.
China's Ministry of Finance signed the deal according to statements from both governments.
The head of private equity for Greater China and partner at Hogan Lovells thinks that this is a big progress.
She said that the PCAOB investigation would focus on the audit firms.
The leader on the Chinese side of the next steps is China's registered accounting firms that are overseen by the Ministry of Finance.
Analysts said that there was uncertainty around the implementation of the agreement.
Peter Tsui is the president of the Hong Kong based Association of Chinese Internal Auditors. According to a CNBC translation, he said that.
He said there are still questions over what information the firms should give.
Tsui told them to give them some guidelines.
Tsui said there is no political interference on the U.S. side if the inspections are done by accountants on both sides. Four accounting firms are members of the association.
The audit cooperation agreement has not been released by the Ministry of Finance. CNBC requested comment from the ministry, but they did not reply.
If the US and Chinese presidents meet in person this fall, it will be the first time they have met in person. The final agreement on the audit dispute could be sped up by that.
According to a CNBC translation, Liao said that the audit work paper problem depends on political interaction between China and the U.S. This problem can be solved with trust.
The PCAOB will decide in December if China is still obstructing access to audit information.
Gary Gensler, chair of the U.S. Securities and Exchange Commission, told CNBC that he expects the PCAOB to make a determination on whether to delist Chinese companies.
In order to hedge against a potential delisting from the U.S. stock exchanges, a number of Chinese companies have begun to issue shares in Hong Kong. Beijing has increased its scrutiny of Chinese companies wanting to list overseas since Didi went public in the U.S.
The flow of Chinese IPOs in the US has slowed due to political uncertainty.
According to Renaissance Capital, 16 Chinese companies have listed in the U.S. The firm said in 2020 that 30 China-based companies had listed in the U.S.
Five of the largest U.S. institutional holdings of Chinese stocks are in the US. According to Morgan Stanley research, that is the case.
All Rights Reserved © 2024
