SEC to Order Chinese Firms to Use Auditors Overseen by U.S. - WSJ

November 17, 2020 8:20 AM EST

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Chinese companies with shares listed on U.S. exchanges will be required to use auditors overseen by U.S. regulators, The Wall Street Journal reported today. Otherwise, they’re at risk of being removed from exchanges.

The Securities and Exchange Commission (SEC) is now in the process of drafting regulations with an aim to issue it for public comment in December.

If entered into the force, the New York Stock Exchange and Nasdaq will be required to ask Chinese companies for compliance with audit inspections. The Public Company Accounting Oversight Board (PCAOB) is in charge of auditors control.

According to the draft regulations, Chinese firms listed in the U.S. would allow a second review of their accounts by an auditor that complies with PCAOB oversight.

“How do you meet the U.S. goal which is an audit subject to a meaningful inspection, and what appears to be the Chinese goal of limiting the access to information held in China?” said Paul Leder, the former head of the SEC’s Office of International Affairs.

This move doesn’t come as a surprise given that President’s Working Group on Financial Markets issued a recommendation to tightening the exchanges’ standards for listing Chinese companies.

China has rejected numerous attempts from the U.S. regulators to allow inspection of companies listed in the United States, citing concerns related to strategic secrets.

Earlier this year, a new law was passed to bar its citizens and companies from complying with overseas securities regulators without asking for permission from domestic regulators first.

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