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Officials of the Trump administration advised the president to call Chinese companies trading on the United States exchange markets to meet US auditing standards. The repercussion of not following the guidelines will lead to delisting by January 2022.
In line with this recommendation, Chinese agencies have to make internal auditing documents available for the United States.
The proposal addresses the long-standing issue of American regulators being unable to inspect Chinese companies’ financial audits even when they sell shares in the US stock market. It follows the bipartisan law passed by the senate in May.
The treasury officer told reporters that the suggestion is to level the playing field and promote equality in the United States. Meanwhile, the China Securities Regulatory Commission (CSRC) said that for a win-win situation, mutual concerns need dialogue to solve them.
The Chinese watchdog also proposed joint accounting with the US regulators to show their complete sincerity. The CSRC also argued that although auditing should occur through cooperative channels in line with Chinese laws, they have never obstructed the process before.
Senator Chris Van Hollen, the sponsor of the bill, calls the recommendation an essential first step. If left unpassed, the advice remains just a recommendation and does not do anything for an American investor.
The passing of the bill will give it the necessary teeth to protect our investors. If the president and senate pass this recommendation into law through an SEC rulemaking process, Chinese companies have ample time to make necessary preparations.
Based on the suggestion, already listed companies will have two options for auditing:
- Grant the United States auditing watchdog, known as the Public Company Accounting Oversight Board (PCAOB), access to their audit documents.
- Provide a “co-audit”—like an affiliate auditing firm or the Chinese watchdog—based on Chinese laws
As for the incoming investors or first-timers, they will need to comply with these laws immediately.
Despite the CSRC’s claims, PCAOB has complained about China’s failure to grant them access to their internal audit records.
In addition to the auditing transparency recommendation, some other suggestions the administration made were about transparency with Chinese investment risks.