Chinese authorities have been roadblocks in the way of American audit regulators who are unable to conduct proper inspections of audit firms based in China.
The Public Company Accounting Oversight Board (PCAOB) is able to conduct inspections of audit practices in many countries such as Australia but China remains elusive with the American regulator pulling no punches in public statements about the lack of cooperation from China.
PCAOB inspections made news recently because the Sydney office of HLB Mann Judd was banned for three years from auditing issuers in the American market because of shortcomings in the audit of one company that sought capital in the States.
A total of $75,000 in fines was issued against the firm and its audit partners on the job, Darryl Swindells and Aidan Smith. Swindells was also barred from doing work on issuers for three years and Smith has been sidelined from being able to do audit work on issuers in the American market for 12 months.
The PCAOB published a statement on its web site earlier this year that noted that there were 17 firms that were registered with it during the 18 month period ending 31 May 2020.
Those 17 firms audit 195 public companies that have US$1.7 trillion in market capitalisation with 10 of that number being responsible for market capitalisation with US$1.3 trillion.
“It is not possible to estimate the exposure of U.S. institutional and retail investors to these companies with precision for various reasons, including because U.S. and non-U.S. investors may gain exposure to these companies through U.S. and non-U.S. transactions and holdings,”
The regulators in both countries did agree a Memorandum of Understanding in 2013 but it appears that MoU has not delivered what the American audit plods need to get their job done properly.
“Chinese cooperation has not been sufficient for the PCAOB to obtain timely access to relevant documents and testimony necessary to carry out our mission consistent with the core principles identified above, nor have consultations undertaken through the MOU resulted in improvements,” the PCAOB observes.
“We continue to address these issues with Chinese regulators, and whether we will obtain equivalent access remains an open issue.”
An absence of Chinese cooperation does not mean an accounting firm will get it easy from the regulatory team at the PCAOB. Staff and the audit regulation body state in a ‘question and answer’ style document issued on 30 December 2016 that Chinese regulatory non-cooperation is no excuse for firms to baulk at obligations set down in PCAOB rules.
“If the PCAOB makes a demand on the firm for its work papers or other information in an inspection or investigation, the PCAOB will expect the firm to ensure that the materials are completely and unconditionally produced to the PCAOB by the PCAOB prescribed deadline,” the document observes.
“The Board has stated that non-U.S. legal obstacles do not create an exception to a registered firm’s obligation to provide documents and other information to the Board, and they are not a defense to Board disciplinary action for non-cooperation, including potentially revocation of a