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China says it is willing to cooperate with the US on revision agreement as the challenges approach

HONG KONG, May 11 (Reuters) – China’s securities watchdog said on Thursday it was willing to work with its U.S. counterparts to promote regulatory cooperation on audits and safeguard the rights and interests of global investors.

The China Securities Regulatory Commission (CSRC) commented a day after a US accounting watchdog said it found unacceptable deficiencies in audits of US-listed Chinese companies.

“We noted that the US regulator said the deficiencies they found this time were normal for a first-time inspection,” it said in a statement responding to a Reuters request for comment, adding that Beijing would continue to cooperate with the US

The US Public Company Accounting Oversight Board (PCAOB) published the findings of its inspections on Wednesday, after gaining access to auditors’ accounts for the companies under an agreement reached last September.

That access, achieved after more than a decade of negotiations with Chinese authorities, prevented roughly 200 China-based public companies including Alibaba ( 9988.HK ) and JD.Com ( 9618.HK ) from potentially being kicked off U.S. exchanges.

The CRSC statement said that “the inspection report also did not conclude that the audit opinions of the relevant auditors were inappropriate,” and that it believed the deficiencies found would help audit firms correct the problems and improve quality.

Analysts said the deficiencies found by the US watchdog were unlikely to derail the audit agreement, but reversing the practice quickly amid continued US-China tensions would be challenging.

“In general, the PCAOB expected high rates, and these are not surprising in the short term,” said Jackson Johnson, a former PCAOB inspector and president of Johnson Global Accountancy, an audit consulting firm based in Nevada, adding that there was much work to be done to improve the results before the next inspection.

Law firm Wilson Sonsini’s senior partner Weiheng Chen said that while the deficiency rate in the PCAOB findings was much higher than the average of the reviews, the results would not lead to a company’s financial statements being restored.

“So these deficiencies alone would not lead to any delisting of shares.”

Paul Gills, a professor of accounting at Beijing International Studies University, said the PCAOB opinion appeared to be strongly worded, but there were expected flaws.

“I guess most of the issues have already been addressed by the auditors…Although politics is not supposed to go into it, of course they do. And if they (the PCAOB) appeared to be too accommodating, they would really got a lot of criticism … accusing them of being soft on China,” he said.

Reuters reported in March that the PCAOB has begun a new round of inspections in Hong Kong as part of the deal, a rare bright spot in China-US relations at a time when some business leaders have expressed concern about the decoupling of the world’s two largest economies.

Reporting from the Beijing Newsroom; Written by Xie Yu; Editing by Sumeet Chatterjee

Our standards: Thomson Reuters Trust Principles.

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