Aug. 26 (UPI) — The U.S. and China struck a deal that would allow American accounting regulators to inspect China-based audits and possibly prevent numerous Chinese companies from being kicked off American stock exchanges.
The Public Company Accounting Oversight Board signed the agreement with the China Securities Regulatory Commission and China’s Ministry of Finance, according to The Wall Street Journal.
U.S. regulators were previously denied access to companies’ audit working papers because of national security issues.
However, on Friday, the Chinese stock regulator reversed course and said that audit working papers generally do contain state secrets or other sensitive information.
“The real test will be whether the words agreed to on paper translate into complete access in practice,” PCAOB Chair Erica Williams said in a statement, according to Politico.
She added that the agreement has “no loopholes and no exceptions.”
Since the early 2000’s, the United States has required all publicly traded companies to provide the PCAOB with the ability to inspect their auditors.
However, in 2020, lawmakers passed the Holding Foreign Companies Accountable Act.
Under the law, companies that are found to not have allowed the PCAOB complete access for three straight years would risk being kicked off U.S. exchanges.
“Foreign companies operating on U.S. markets should be held to the same standards across the board,” said Sen. Chris Van Hollen, D-Md., who first introduced the legislation along with Sen. John Kennedy, R-La., in a statement Thursday.
The PCAOB said complete access would mean U.S. regulators will be able to interview and take testimony from “all personnel associated with the audits the PCAOB inspects or investigates.”
One detail that is still unclear is whether U.S. regulators would be able to conduct their investigations without Chinese officials present.
According to a statement from China, Beijing emphasized that U.S. regulators would only be able to conduct inspections with the assistance of the Chinese.