warned at re: The Auditors in July that the U.S. Securities and
Exchange Commission and the audit regulator, the PCAOB, were publicly ignoring
more important implications of their restricted access to Chinese
auditors than the delisting of Chinese companies or the invalidation of the
audits of Chinese companies.
The U.S. casino industry is already facing the worst case
The SEC can delist questionable Chinese companies or even
all China-based listings that came through reverse mergers or more traditional
means, as some have suggested it might do. That would be sad but not tragic.
According to The Financial Times as of late September:
Since the latter part of 2010, when alleged financial
frauds and accounting issues began emerging in small Chinese companies that are
listed on US stock exchanges, 67 China-based issuers have had their auditor
resign and 126 companies have either been
delisted from US securities exchanges or have stopped filing regular
reports with the Securities and Exchange Commission.
The PCAOB can start doing something by observing
audits in China, as recent announcements have suggested might finally happen.
PCAOB Chairman Doty has even warned he may start de-registering audit
to Reuters, if the situation with China is not resolved in the next year.
interviewed PwC's Global Chairman Dennis Nally on the subject. It was a
disingenuous attempt by PwC to seem concerned about the regulatory stalemate. Seriously,
folks. The Big Four audit firms do not for one "Hollywood minute"
believe the PCAOB will deregister their Chinese member firms or any of the other member firms in other countries that restrict
PCAOB inspections. A de-registration would render the audits performed by
those firms unacceptable and invalid according to U.S. exchange listing
standards. Dennis Nally knows that it's not just China-based companies that
will have a problem with their audits if that happens.
The Big Four leaders only seem worried. When faced with
its first test of will, the PCAOB punted. The audit regulator recently
re-registered KPMG China, the first firm to reorganize to meet Chinese
requirements to be majority owned and run by Chinese partners. Professor
Paul Gillis of the China Accounting Blog wrote:
has said that the transfer of an existing registration using Form 4 is only
available where the successor firm is under substantially the same ownership as
the predecessor firm. Obviously that is not the case here, since KPMG has
designated so few partners to own the new firm."
It is extremely important, according to Gillis, that KPMG
and the rest of the Chinese member firms of the Big Four and other global audit
networks keep their old registrations as they reorganize their partnerships
under the "localization" mandate. That's because, "the PCAOB
announced in 2010 that it intends to reject any new applications for
registration from firms in countries that will not allow PCAOB inspections."
Read this article in its entirety at the re: The Auditors, a blog
by Francine McKenna.
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