The US Public Company Accounting Oversight Board (PCAOB) has signed a Memorandum of Understanding (MoU) with its Chinese counterpart and the Chinese Ministry of Finance enabling the production and exchange of audit documents relevant to investigations in both jurisdictions.
The long awaited agreement comes after months of increased tensions between the US Securities and Exchange Commission (SEC)and the Big Four as well as BDO’s Chinese firm. The SEC triggered legal proceedings agains the firms for refusing to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against US investors. The firms claimed they were unable to comply with the request due to Chinese secrecy laws and called for a diplomatic solution between China and the US.
The PCAOB said the MoU, "provides a mechanism for the parties to request and receive from each other assistance in obtaining documents and information in furtherance of their investigative duties".
However, the MoU does not permit joint inspections in China of audit firms that are registered with the PCAOB and audit Chinese companies that trade on US stock exchanges.
Approximately 47 audit firms in China are registered with the PCAOB.
"This agreement with China is an important step toward cross-border enforcement cooperation that is necessary to protect the interests of investors in US capital markets," PCAOB chairman James Doty said. "We look forward to continued progress with our Chinese counterparts to reach an agreement on cross-border inspections of PCAOB-registered firms as well," he added.
In response to the MoU BDO Hong Kong chairman Albert Au said the development is a positive one, which hopefully could resolve the legal impasse between the firms and the SEC. Ernst & Young said in a statement that it welcomes the announcement of an agreement between US and China regulators over access to audit working papers. "This is a significant step forward in cross border cooperation".