China's ban on overseas auditors raises concern over transparency
Ahead of Alibaba's huge US listing, Chinese regulator proposes a ban on international firms auditing the books of mainland IPO hopefuls
Beijing has imposed a surprise roadblock to financial reform by foreshadowing severe restrictions on international accountants, including those from Hong Kong, when auditing mainland companies listing overseas, increasing investor concern over whether their books are clean.
The proposals come at a time when the Alibaba Group is preparing to list in the United States, with investors keenly interested in the degree to which accounting firms have gone over the books of the mainland e-commerce giant.
Under the 10 new rules announced by the Ministry of Finance on its Chinese-language website last week, international accounting firms are barred from sending their staff to audit a mainland company. Instead, they are required to team up with local accounting firms so that the domestic partners' accountants will do the audit.
"This is moving the clock backwards. The proposals, if they are implemented, would cut down the transparency of the auditing process and erode the role of Hong Kong and other international accountants," Clement Chan, the president of the Hong Kong Institute of Certified Public Accountants, told the South China Morning Post.
"This would affect international investors' confidence because for the past 20 years Hong Kong and other international accountants have acted as a gatekeeper [for investors and the markets]."
In addition, the new rules reinforce the requirement that all accountants must strictly follow the country's secrecy laws and cannot pass on any information to overseas regulators or exchanges.