China will seek out ‘regulatory equivalence’ when it comes to audit inspections of its USA listed firms’ according to Paul Gillis, professor of practice at Peking University’s Guanghua School of Management.
Reacting to the news that the PCAOB was allegedly given the go ahead to inspect audits of US listed Chinese firms Alibaba Group Holding Ltd and Baidu Inc., Gillis said: “I think China will try to hold out for regulatory equivalence – where the PCAOB will not do inspections but instead rely on Chinese regulators.”
He described the alleged news about Alibaba Group Holding Ltd and Baidu Inc audit inspections as merely a face saving exercise and not a real attempt at achieving transparency.
“I understand that significant restrictions were placed on these inspections, such that the PCAOB examiners could not even ask questions. If that is true, this was more a face saving exercise for the PCAOB than any meaningful inspection,” he said.
Gillis is not the only one doubtful about the significance of this news. “What does this mean? I really don’t know,” Eddie Wong, partner at China Practice of Friedman LLP (DFK USA) said. “But what I do know is that a lot of the former state-owned entities (SOE) have dual listings in China and the USA, such as China Mobile, China Life, etc. If the PCAOB will mandate a permanent ban of the Big Four in China, what will happen to the USA audits of those Chinese companies listed in the USA?”
Roy Lo, board member of ShineWing International and managing partner of ShineWing Hong Kong said it could not be confirmed at the moment if the PCAOB had indeed been given the go ahead for the audit inspection of Alibaba and Baidu.
“There should always be a proper channel for more interactive, reciprocal and even transparent communications between Chinese regulators and USA or overseas regulators,” he continued. “This is important to help upholding the auditing standards in different local regimes, protect the best interests of the listed companies and investors in each market, and safeguard the healthy market development of their home countries as well as the global markets.”
A spokesperson for the PCAOB said: “The PCAOB continues to work toward obtaining access to the information we need in order to conduct the necessary inspections of registered firms in China and Hong Kong.”