Presented by: Haiyi (Rachel) Chen

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Presentation transcript:

Presented by: Haiyi (Rachel) Chen US-China Auditing Cross-boarder Supervision: Negotiation and Cooperation Presented by: Haiyi (Rachel) Chen

Why We Need Cross-boarder Supervision? Chinese companies seek financing abroad and list in US. All US listed companies must register with SEC and be subject to the supervision of SEC. All public accounting firms that provide auditing services to public companies listed in the U.S. must register with and be subject to the supervision of PCAOB. Chinese firms and auditors are subject to Chinese regulating authorities’ supervision and Chinese law enforcement. SEC/PCAOB asks for audit work paper for review when conducting inspection or investigation.

A Conflict Lies in… Chinese audit firms believe that they are prevented by Chinese law from providing audit documents to foreign organizations without approval from relevant Chinese authorities. The audit firms’ refusal to provide audit work papers when requested by SEC/PCAOB is a violation of U.S. securities laws and regulations. The audit firms would violate either one law or another! Big 4 China and other audit firms have no where to go…

Brief Review of Important Events May 2012, SEC sued Deloitte Shanghai and accused Deloitte Shanghai of non-cooperation in providing audit work papers related to the investigation of the financial fraud of concept stock Longtop. December 2012, SEC started its litigation against five China-based accounting firms, accusing related to nine investigations of financial fraud by China concept stocks. March 2013, SEC delayed its initial ruling of the litigation against Deloitte Shanghai and combined it with the litigation against the other Big Four firms. May 7th, 2013, the China Securities Regulatory Commission, The Ministry of Finance of China and PCAOB, signed a Memorandum of Understanding (MOU) to launch a cross-border audit enforcement cooperative. In July 2013, China started to produce documents to the PCAOB. In January 2014, SEC made its initial ruling and suspended the accounting firms from practicing. In January 2015, the Chinese accounting firms eventually reached a settlement agreement with SEC.

Where Are We Now? A Memorandum of Understanding (MOU) (2013) between PCAOB and China is in effect: PCAOB is able to receive audit documents of relevant investigations provided by CSRC, and pass those documents to the relevant regulators such as SEC. Chinese regulators must approve the audit documents to ensure that giving the documents to PCAOB doesn’t violate local law or national interest. Feb. 2015 Settlement between Big 4 China and SEC: requires the firms to follow detailed procedures to give the SEC access to Chinese firms’ audit documents via the China Securities Regulatory Commission, similar to the method in use since 2013. If the firms don’t follow the procedures, the SEC could impose penalties such as suspensions, or it could restart the current enforcement case.

Where Are We Going? Welcome to discuss! There are still ongoing communications concerning auditing cross-boarder supervision between US and China authorities.

Reference [1] Ye, Huiyu. SEC reached a settlement agreement with the “Big Four” accounting firms: Negotiation between PCAOB and CSRS is far from completion[J/OL]. 21st Century Business Herald, 2015-02-11 [2] PCAOB, CSRC, MOF. Memorandum of Understanding on Enforcement Cooperation between Public Company Accounting Oversight Board of the United States and China Securities Regulatory Commission and the Ministry of Finance of China[Z]. n/a: n/a,2013. [3] Lee, Ashley. What New US-China Accounting MoU Really Means[J/OL]. http://www.iflr.com/Article/3214211/What-new-US-China-accounting-MoU-really-means.html, 2013-06-04 [4] Rapoport, Michael, McMahon,Dinny. Beijing Signals Better Cooperation on Audits[J/OL]. http://www.wsj.com/articles/SB10001424127887324694904578596993307363274, 2013-07-10. [5] Rapoport, Michael. SEC, Big Four Accounting Firms in China Settle Dispute[J/OL]. http://www.wsj.com/articles/sec-big-four-accounting-firms-in-china-settle-dispute-1423237083, 2015-02-06 [6] iChinaStock. US and China Fail to Agree on Cross-Border Auditing Standards[J/OL]. http://www.businessinsider.com/us-and-china-fail-to-agree-on-cross-border-auditing-standards-2011-8, 2011-08-08 [7] Wang, Zhaotong. The Effects of the China-US Audit Supervision Agreement on Stock Regulation[J/OL]. http://china-ris.com/en/newsview.php?newsid=180, 2014-09-18 [8] International Organization of Securities Commissions. Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information[Z]. n/a: n/a,2002.