Latest moves from the Chinese regulatory authorities suggest that the long-running Sino-US audit dispute is likely to hit a new milestone. The China Securities Regulatory Commission (CSRC) was reportedly holding meetings with the Chinese units of the global “big four” accounting firms. The meetings were in regard to preparations for auditing inspections from the US over Chinese firms listed on US-based exchanges.
Over the past few months, as required by US law, a new policy called the Holding Foreign Companies Accountable Act (HFCAA), was put into practice by the United States Securities and Exchange Commission (SEC). The policy has added several batches of US-listed Chinese companies to its provisional list as non-compliant firms. The companies face the risk of being delisted from US stock exchanges should they not comply. Against the backdrop of increasing bilateral tensions between China and the US, US-traded Chinese stocks, particularly in the tech sector, have been under pressure and have been underperforming.
The latest news from Bloomberg was that “Chinese authorities are preparing to give US regulators full access to the auditing reports of the majority of the 200-plus companies listed in New York as soon as the middle of this year.” The news was confirmed by a WeChat screenshot reportedly from David Zhang, founding managing partner of Matrix Partners China. Several venture capital industry professionals also confirmed to Pandaily about the authenticity of the WeChat screenshot.
According to Zhang, this arrangement of audit and regulatory cooperation between the two countries will resolve the delisting risk for US-listed Chinese firms and will normalize in the future. Furthermore, the “big four” accounting firms, together with representatives from brokerages, law firms and companies, recently also attended a meeting held by the CSRC, discussing the issue of variable interest entity (VIE), a structure some Chinese companies have used to list in the US. The move also explores the potential implementation of the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies.
Additionally, regarding the network security review for Internet companies that hold the data of more than one million users, according to Zhang’s WeChat message, some companies are expected to receive feedback from the authorities within a couple of months. It is believed that Chinese firms seeking IPOs overseas, especially in the US, have become much more possible.
The above development has also demonstrated what the CSRC said in a statement on Thursday, that “after three virtual meetings between the CSRC chairman Yi Huiman and SEC chair Gary Gensler since August 2021… and several rounds of frank, professional and productive meetings with the Public Company Accounting Oversight Board… the outcome will depend on the wisdom of both parties.”