No 'loopholes' in U.S., China audit deal — PCAOB leader

The Public Company Accounting Oversight Board expects full cooperation from their Chinese counterparts as investigators begin their work inspecting and investigating the audit firms of Chinese companies, PCAOB Chairwoman Erica Y. Williams said Thursday at a Council of Institutional Investors conference in Boston.

"I want to be very clear: the time for negotiations is over," said Ms. Williams, who addressed the conference virtually. "The agreement has been signed. And it must be followed completely."

The agreement, announced Aug. 26, requires that Chinese authorities allow the PCAOB to independently select audit firms and clients; view audit work papers without redaction; interview and take testimony from audit personnel in China and Hong Kong; and share information with the Securities and Exchange Commission.

The deal comes after Congress passed the Holding Foreign Companies Accountable Act in December 2020, which imposed a 2024 deadline for the U.S. and China to reach an agreement before issuing a trading ban for companies using audit firms that refuse PCAOB inspections for three consecutive years.

After the legislation passed, many Chinese companies pursued dual listings in Hong Kong, and five state-owned enterprises voluntarily delisted from U.S. exchanges in mid-August.

"Voluntarily delisting is not an escape hatch for avoiding PCAOB scrutiny," Ms. Williams said Thursday. "Our inspections and investigations are retrospective. If a company delists this year, we still need to know whether wrongdoing occurred in previous years."

PCAOB investigators, who last week began arriving in Hong Kong to conduct inspections of firms in both mainland China and Hong Kong, will look at several factors, including the audits of specific selected companies and the overall quality control systems of the audit firms themselves, Ms. Williams said. They will also review audit opinions that firms sign directly, and audit work those firms perform on behalf of others, she added.

The PCAOB by the end of the year will make determinations whether Chinese authorities have allowed U.S. officials "to inspect and investigate completely or they have continued to obstruct," Ms. Williams said.

The Holding Foreign Companies Accountable Act demands complete access and "the agreement we signed with our Chinese counterparts guarantees complete access," Ms. Williams said. "And the PCAOB will accept nothing less than complete access when we make our determinations by the end of this year."

She added, "When I say no loopholes and no exceptions, I mean none."