U.S. and Chinese regulators recently met in Beijing to
discuss audit oversight cooperation. Those meetings are of particular interest
in view of the questions which have been raised in recent months regarding the
financial statements of Chinese issuers whose shares are traded in U.S.
markets. Those issues have sparked a rash of class action suits (here) as well as an investigation
by the SEC.
The Sino-U.S. Symposium on Audit Oversight was attended
by officials of the China Securities Regulatory Commission or CSRC, the Chinese
Ministry of Finance or MOF, the Public Company Accounting Oversight Board and
the Securities and Exchange Commission. This meeting is an outgrowth of the
third U.S. - China Strategic and Economic dialogue.
The meetings focused on developing an effective
cross-boarder audit oversight system in the near future to ensure market
integrity and investor protection. Such a system would permit the PCAOB to
carry out its obligations under the Sarbanes Oxley Act and conduct the required
periodic inspections of Board registered auditors of China based issuers.
During the meetings the PCAOB representatives, lead by
Board member Lewis Ferguson, gave detailed presentations about the Board's
operations and its audit inspection process. Board representatives, along with
those from the SEC, explained how their inspection process interacts with
foreign regulators. Similarly, officials from the CSRC and the MOF provided an
overview of the audit and accounting oversight framework for China's capital
markets along with supervision arrangements and inspection mythology for
accounting and auditing firms.
The U.S. delegation invited the CSRC and the MOF to send
delegates to Washington, D.C. to have further discussions.
No agreements were reached during the meetings. This
means that the PCAOB still cannot conduct inspections of U.S. related audit
work by PCAOB registered firms in the Peoples Republic of China. Earlier this
year the Board issued a warning regarding issuers which are the product of
Chinese reverse mergers (here).
Program: Current Trends in
FCPA Enforcement, August 17, 2011, Live in Menlo Park, CA, and webcast
nationally. The program link is here.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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