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

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

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.  

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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.