US-China audit inspection agreement

28th July 2014

MGI World US-China audit inspection agreement

Chinese and US regulators are making progress regarding an agreement on audit inspections, according to the chairman of the US audit-industry regulator.

Public Company Accounting Oversight Board (PCAOB) chairman James Doty told The Wall Street Journal that the first such inspection of a Chinese audit firm could take place before the end of the year after significant progress was made in the ongoing talks.

Mr Doty revealed that while an agreement may be some distance away from being finalised, a series of "productive" meetings between the two nations have been held in recent weeks.

"We continue to work out the details of such cooperation and expect the two sides to be able to reach agreement on a set of protocols in the coming months," Mr Doty said following the latest discussions, which took place earlier in the month.

A mechanism to allow for inspections is still being thrashed out between the US and China, but it appears that progress was made at the recent Strategic and Economic Dialogue high-level talks that took place in Beijing.

China has previously blocked any attempt from the US to inspect its firms, even though the PCAOB carries out regular audits of all US-traded companies. However, with a number of major Chinese organisations lining up initial public offerings in the US, the need for a formal system for audit inspections to be put in place has intensified.

Chinese ecommerce business Alibaba is preparing to float on the New York Stock Exchange later in the year and Mr Doty admitted this upcoming offering "has only intensified our efforts" to resolve the inspection problem between the two nations. He said: "We should seize on the opportunities presented by the dialogue and move forward without delay."

The PCAOB was created by the Sarbanes-Oxley Act of 2002 and the organisation ensures that public companies are subject to external and independent oversight for the first time in history. Members of the body's board are appointed to five-year terms by the Securities and Exchange Commission, which has oversight authority over the PCAOB.

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