On Monday, during an interview at Bloomberg’s Washington office, U.S.-PCAOB chair Erica Williams said the U.S.-China talks over audit-paper access are ongoing reiterating the need for complete access.
The chair of the Public Company Accounting Oversight Board said “We need to have complete access” [to the audit papers] adding that PCAOB has teams ‘ready to go” to the country if an agreement is reached, meaning “no loopholes”.
Last week, during the 20th Anniversary of Sarbanes-Oxley Act and Establishment of the PCAOB, Williams said “We know our standards are only as effective as our ability to enforce them. Removing bad actors from the profession and punishing wrongdoing protects investors and promotes deterrence”.
“We will not hesitate to hold wrongdoers accountable for breaking the rules. We are just halfway through the first year of this new Board. Already we’ve more than doubled our average penalties against individuals compared to the last five years. This includes the largest money penalty ever imposed on an individual in a settled case,” she added.
“At the same time, we’ve increased our average penalties against firms by more than 65%. In the past five years, the PCAOB assessed penalties against individuals less than half of the time and firms only about 86% of the time. This year it’s 100%. We are also pursuing enforcement actions involving certain types of violations for the first time,” PCAOB Chair concluded.
On July 25, China’s Securities Regulator denied a report that said Beijing was working on a 3-tier plan to avoid the delisting of around 260 U.S.-listed Chinese companies. One day earlier, FT had reported Beijing was planning to sort the firms into three different groups considering the sensitivity of the data they hold.
In a statement released one week ago, the regulator said “Enterprises are required to comply with relevant national data information management laws, rules and regulatory requirements of the place of listing, regardless of whether they are listed domestically or overseas”.
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In 2020, Congress said that “it’s time for audit firms in all jurisdictions around the world to comply fully with Sarbanes-Oxley” approving a new rule to delist firms from the U.S. Stock Market if they don’t open their work papers to PCAOB inspection for three consecutive years.
The approval says, if governmental authorities don’t allow the auditors of foreign companies “to open their work papers to PCAOB inspection for three consecutive years”, the securities of companies audited by those firms could be “prohibited from trading in the U.S.”.
With the new rules, investors will be able to easily identify registrants whose auditing firms are located in a foreign jurisdiction that the PCAOB cannot completely inspect, U.S. SEC Chair Gary Gensler said in December 2021.
“The Commission and the PCAOB will continue to work together to ensure that the auditors of foreign companies accessing U.S. capital markets play by our rules. We hope foreign governments will working with the PCAOB, take action to make that possible,” he added.
Earlier this month, Bloomberg reported U.S. Public Company Accounting Oversight Board (PCAOB) and the China Securities Regulatory Commission and the Ministry of Finance held calls with the negotiations “reaching a critical point”. Bloomberg added that the “redactions in auditors’ documents are a key barrier” to reaching a deal.
In early May, US SEC updated the Holding Foreign Companies Accountable Act (HFCAA) list adding NIO, XPeng while the PHEV maker LI Auto was added in late April. When both EV makers were added to the list, NIO answered by saying it will “continue to comply with applicable laws and regulations in both China and the United States” and also “strive to maintain its listing status on both the NYSE and the HKEX in compliance with applicable listing rules”.