PCAOB to Auditors of Chinese Companies – Get to China!

The Reverse Merger Report has reported that the US Public Company Accounting Oversight Board (PCAOB) has issued a warning to auditors of Chinese companies to be prepared for extra scrutiny from the Board. In particular, they have expressed concern about US -based auditors who rely on field work of China-based accountants and do not even go visit the clients. Essentially, the Board is saying this  is unacceptable. This could be very difficult for a number of small auditing firms here that have been doing quite a bit of work in China but do not have the resources to visit clients on a regular basis, or for other reasons choose not to. In reality, most respected firms here do not have this issue and do regularly visit. I know several that are in China almost every month for this purpose. But even visiting is not enough. The article quotes a PCAOB’er who is concerned that in many cases 90% of the work is being done by the local firms that do not sign the audit report.

This is related to what I have discerned is a heightened scrutiny at the SEC (the SEC Commissioners appoint the PCAOB board members) with respect to Chinese companies going public. As the RMR reported in the same issue, a number of Chinese companies unfortunately are facing SEC investigations and shareholder lawsuits over a variety of alleged bad activities. Unfortunately, the many exciting and cleanly run Chinese companies do not make the headlines! It seems to me, though, that the heightened scrutiny by the PCAOB makes sense, to help improve the transparency and comfort level for regulators and investors in these transactions. Meantime we’re still awaiting final resolution of the US Supreme Court’s declaration that the method of appointing the PCAOB board members is unconstitutional….stay tuned all around…

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