Business: US regulators in China to talk about audit compliance

This week the U.S. Securities and Exchange Commission (SEC) added over 80 firms, including e-commerce giant JD (NASDAQ:JD).com and China Petroleum (NYSE:SNP) & Chemical Corp to the list of companies facing possible expulsion.

U.S. and, Chinese regulatory officials are in converses with settle a long-running dispute about the auditing compliance of U.S.- recorded Chinese firms, three individuals briefed on the matter told Reuters. The standoff, in the event that not settled, could see Chinese firms started off New York bourses. The U.S. Public Company Accounting Oversight Board (PCAOB) denied a previous Reuters report that said a group from the agency had shown up in Beijing for talks. The PCAOB authorities are expected to leave quarantine and begin working one week from now, one individuals said.

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The talks between officials from the U.S. Public Company Accounting Oversight Board (PCAOB) and their counterparts at the China Securities Regulatory Commission (CSRC) can be described as ‘late stage’ after China made concessions in recent months, the people said.

If this visit proceeds as expected, the PCAOB is likely to send a bigger team to China later this year to conduct on-site inspections of local auditors, the person said.

The sources declined to be identified due to the sensitivity of the issue. The PCAOB did not respond to requests for comment. The CSRC did not directly address Reuters queries about the arrival of PCAOB officials or the status of discussions.

Authorities in China have long been reluctant to let overseas regulators inspect local accounting firms, citing national security concerns.

But in a key concession, Chinese regulators last month proposed revising confidentiality rules for offshore listings and scrapping requirements that on-site inspections of overseas-listed Chinese firms be conducted mainly by domestic regulators.

The PCAOB sent representatives to China for face-to-face negotiations earlier this year, said the two of the people.

Separate sources also said last month that a preliminary framework for audit supervision cooperation between the two countries has been formed. The spat over audit oversight of New York-listed Chinese companies has been simmering for more than a decade but it came to head last December when the SEC finalised rules to delist Chinese companies under the Holding Foreign Companies Accountable Act. It said there were 273 companies at risk but did not name them.

As of Friday, the PCAOB has identified 128 Chinese firms as at risk of being delisted. The issue has been a major factor dragging on American depositary receipts (ADRs) issued by Chinese firms, with the Nasdaq Golden Dragon China Index tumbling 57% over the past 12 months.

Goldman Sachs estimated in March that U.S. institutional investors held around $200 billion worth of Chinese ADRs. In addition to the concessions by Chinese regulators, there have been other signs that a deal is in the offing.

In late March, sources said the CSRC asked some of the country’s U.S.-listed firms, including Alibaba Group Holding Ltd 9988.HK, Baidu Inc 9888.HK and JD.com, to prepare for more audit disclosures. Late last month, Fang Xinghai, the CSRC’s vice chairman said he expected a deal in the near future.

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