China’s new audit rules don’t answer all of US-listed firms’ prayers, industry watchers say

The onus will be on listed companies to assess what is sensitive information, Chamber of Hong Kong Listed Companies CEO says

Inevitable that some companies with sensitive information may be more uncertain about listing in the US: CPA Australia councillor

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The financial district in Shanghai. The CSRC’s announcement was a very positive breakthrough, according to an expert. Photo: AFP

Published: 8:20pm, 4 Apr 2022Updated: 11:02am, 5 Apr 2022

New audit review requirements revealed by China’s security watchdog over the weekend have not solved all the problems faced by Chinese companies listed in the United States, industry watchers said on Monday.

Not only did regulators in the US need to agree with the new requirements, but such companies and their auditors will also need clearer guidelines on how to comply with the new rules.

“The onus will be on listed companies to assess what is sensitive information. However, it is a fine line between withholding sensitive information and an incomplete disclosure,” said Mike Wong, CEO of the Chamber of Hong Kong Listed Companies.

The China Securities Regulatory Commission (CSRC) on Saturday issued drafted rules that scrap a requirement that only Chinese regulators can conduct on-site audits of Chinese companies listed overseas. China currently denies access to the US’s Public Company Accounting Oversight Board (PCAOB), citing state secret concerns among others. The new rules also require listed companies and their accountants to decide what is sensitive information and what cannot be handed over to US regulators.

The weekend’s announcement confirmed an earlier South China Morning Post report that the mainland watchdog would adopt a new approach. It also follows the identification last month by the US’s Securities and Exchange Commission (SEC) of 11 New York-listed Chinese companies – out of nearly 200 – as liable to the Holding Foreign Companies Accountable Act (HFCAA), which opens the possibility of their delisting if the PCAOB finds them in non-compliance after three consecutive years. The SEC and PCAOB did not immediately respond to requests for comment.

Listed companies will be under great pressure from both US regulators and shareholders to make sufficient disclosures, while they will also need to follow China’s security requirements, Wong said. To avoid such trouble, companies will avoid listing in the US, he added.