Balancing China’s Interests with Need for Inspections

The current China hot button appears to be a series of meetings between representatives of the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and their counterparts in China. The hope is to convince the PRC government to allow the US regulators to inspect the audits and work papers generated by Chinese auditing firms, and to be able to subpoena their Chinese clients for information. These meetings, which are deemed "private," are taking place today and tomorrow.

Advance reports that I have read indicate that the door may open slightly for some review, but that it is likely to be minimal and not sufficient for the US guys to feel they have full transparency. Apparently, this type of access is not technically allowed under China law, according to one report.

It is clear the PCAOB does not wish to create a potential international incident by banning China-based auditors from auditing US public companies. But they could end up in a difficult position if they are really unable to discern whether Chinese auditors of US public companies are doing their job properly. Stay tuned.

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

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