US, Chinese regulators in talks on audit agreement sources

Chinese and American flags fluttering outside the building of a US company in Beijing, China January 21, 2021. REUTERS / Tingshu Wang

HONG KONG, May 6 (Reuters) – US and Chinese authorities are in talks to resolve a long-running dispute over audit compliance of US listed Chinese companies, three people who were briefed on the matter told Reuters.

The consequence, if not resolved, could lead to Chinese companies kicking off New York stock exchanges.

The US Public Company Accounting Oversight Board (PCAOB) denied an earlier Reuters report saying a team from the agency had arrived in Beijing for talks.

This week, the US Securities and Exchange Commission (SEC) added more than 80 companies, including e-commerce giant JD.com (9618.HK) and China Petroleum & Chemical Corp (600028.SS) to the list of companies facing possible expulsions. read more

The talks between PCAOB officials and their colleagues at the China Securities Regulatory Commission (CSRC) can be described as a “late phase” after China made concessions in recent months, the people said.

But a PCAOB spokesman said: “Recent reports that PCAOB officials are currently in China, or that PCAOB officials were in China earlier this year to conduct face-to-face negotiations, are untrue. PCAOB has not sent personnel to China since 2017. “

He said the board was continuing to talk to Chinese authorities, but “speculation about a final deal is still premature.” As a result, PCAOB plans “for different scenarios”.

On Friday, the CSRC did not respond directly to the status of discussions. It referred Reuters to official statements from both sides, but did not specify which statements.

The sources asked not to be identified due to the sensitivity of the problem.

Authorities in China have long been reluctant to allow foreign regulators to inspect local accounting firms, citing national security concerns.

But in a key concession last month, Chinese regulators proposed revising the confidentiality rules for offshore listings and scrapping requirements that on-site inspections of overseas listed Chinese firms should be conducted primarily by domestic regulators. read more

Sources told Reuters last month that a preliminary framework for audit supervision cooperation between the two countries has been formed. read more

The spit over the audit of New York-listed Chinese companies, which simmered for more than a decade, came to a head in December when the SEC finalized rules to remove Chinese companies under the Holding Foreign Companies Accountable Act. It said there were 273 companies at risk, but did not name them.

As of Friday, the PCAOB has identified 128 Chinese companies that are in danger of being delisted.

The issue has been a major factor that has drawn on U.S. Depository Receipts (ADRs) issued by Chinese firms, with the Nasdaq Golden Dragon China index falling 57% over the past 12 months.

Goldman Sachs estimated in March that US institutional investors had Chinese ADRs worth around $ 200 billion.

In addition to the concessions from Chinese regulators, there have been other signs that an agreement is on the way.

In late March, sources said that CSRC asked some of the country’s US-listed companies, including Alibaba Group Holding Ltd (9988.HK), Baidu Inc (9888.HK) and JD.com, to prepare for more audit disclosures. Late last month, Fang Xinghai, CSRC’s vice chairman, said he expected an agreement in the near future.

Reporting by Xie Yu; Additional reporting from Katanga Johnson in Washington, Selena Li in Hong Kong and Jing Xu in Beijing; Edited by Edwina Gibbs and William Mallard

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