Inspection – A New Age of U.S/China Auditing Inspections
The U.S. has now acquired complete access to inspect Chinese firms for the first time ever. This news has reset a three-year delisting clock for Chinese companies trading on American stock exchanges. What is notable is that the inspection of the accounting firms conducted by the U.S. was done without prior input or consultation from Chinese authorities. The Public Company Accounting Oversight Board, who conducted the audit, recently dispatched 30 staffers on a nine-week field inspection in Hong Kong, doubling the size of its normal inspection team. The team stayed in Hong Kong for three weeks longer than was expected for that kind of inspection. The main firms that were inspected include KPMG Huazhen LLP and Pricewaterhouse Coopers. Both inspections included state-owned companies and other companies in sensitive industries. According to Board Chair Erica Williams, “Today’s announcement should not be misconstrued in any way as a clean bill of health for firms in mainland China and Hong Kong. It is a recognition that for the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them.”
The magnitude of this event is large as just this summer, over 160 companies were flagged by the Securities and Exchange Commission as noncompliant with the new law—and at risk of losing their U.S. listings starting in 2024. From here on, U.S.-listed Chinese companies will be subject to U.S. inspections. Some other major companies that fell under the recent inspection include e-commerce giants Alibaba Group Holding Ltd. and restaurant operator Yum China Holdings Ltd.
What do you think about the new rules? Will it affect how you invest in Chinese companies?
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.