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September 23, 2012

PCAOB makes progress with Chinese regulators

The Public Company Accounting Oversight Board (PCAOB) is seeking alternatives ways of cross-border cooperation with Chinese regulators such as observational visits to build up mutual trust, a member of the board has unveiled.

During a conference at a university in California, PCAOB member Lewis Ferguson said the watchdog and Chinese authorities “have tentatively agreed on observational visits” in China where the US watchdog currently lacks cooperative agreements.

According to Ferguson, these visits will allow PCAOB inspectors to observe the Chinese authorities conducting their own audit oversight work and vice versa.

Although the ‘observational visits’ are not expected to become a substitute for a PCAOB inspection they might be “a trust building exercise between regulators,” Ferguson remarked.

Currently, China’s Security Regulatory Commission and Ministry of Finance do not permit the PCAOB to oversight China-based audit firms.

Chinese authorities maintain that an inspection conducted by a foreign agency violates its national sovereignty and can result in the disclosure of state secrets when the audits of state-owned companies are concerned.  

Ferguson also mentioned that the dialogue with Chinese authorities comprises the concerning issue of cooperation in the course of PCAOB investigations applying to cases such as Deloitte’s Chinese member firm.

Earlier this year Deloitte China refused to turn over the audit work of Longtop Financial Services to the US Securities and Exchange Commission in compliance with Chinese secrecy laws.

Ferguson was less optimistic in this respect and stressed that difficulties remain.  

“We continue to engage in dialogue with the Chinese authorities, but at this time it remains uncertain where this dialogue will ultimately lead,” Ferguson said.

 

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