US Audit Officials Conduct Inspection of New York-Listed Chinese Companies Amid Growing Tensions
In the midst of escalating tensions between the United States and China, US audit officials have initiated a new series of inspections on Chinese companies listed on the New York Stock Exchange. The move comes as concerns over the accuracy and transparency of financial reporting from Chinese firms continue to draw attention.
Sources, who wished to remain anonymous due to the sensitive nature of the discussion, revealed that the Public Company Accounting Oversight Board (PCAOB) dispatched a team to Hong Kong last month. The team’s primary objective was to review the audit reports for the year 2022 of several high-profile Chinese companies listed on US stock exchanges.
The inspections by the PCAOB, a nonprofit organization established by the Sarbanes-Oxley Act of 2002, aim to ensure the accuracy and reliability of financial statements provided by publicly traded companies. This is particularly crucial for Chinese firms listed in the US, as concerns about potential fraudulent practices and discrepancies in their financial reporting have repeatedly emerged in recent years.
Although the PCAOB and Chinese authorities have attempted to negotiate mutual inspection agreements for years, progress has been limited due to disagreements over access to audit documents. Without access to such documents, US regulators have expressed concerns about the quality of financial reporting provided by Chinese companies.
This inspection campaign follows a US law passed in December 2020 that requires auditing firms to disclose any ties to foreign governments and whether they are subject to laws that may impact their independence. This measure was particularly aimed at Chinese auditing firms, as they play a prominent role in auditing Chinese companies listed in the US.
Chinese firms have faced heightened scrutiny in recent years, with allegations of accounting fraud and other irregularities causing significant financial losses for US investors. Notable cases include the collapse of Luckin Coffee and accusations against Chinese e-commerce giant Alibaba.
The current inspection of Chinese companies listed in the US is expected to fuel tensions between the world’s two largest economies. The move comes as both sides continue to spar over an array of issues, including trade, technology, human rights, and cybersecurity.
As the inspections progress, it remains to be seen how the Chinese government will respond to US scrutiny of its listed companies. The outcome could further exacerbate existing tensions and potentially impact the market value and investor perception of Chinese stocks traded in the US.