U.S. audit regulators will soon be allowed to observe their Chinese counterparts as they inspect audit firms doing business in the United States under an agreement struck during the U.S.-China Strategic and Economic Dialogue in Beijing.
It's a big breakthrough for James Doty, chairman of the Public Company Accounting Oversight Board, who has been working on a solution to the deadlock with China over U.S. authority to inspect China-based firms doing audit work that flows into U.S. capital markets. Doty and current and past PCAOB members have tried for several years to gain regulatory access to Chinese firms that are registered with the PCAOB but have resisted inspection claiming concerns over sovereignty and conflict with their own national laws.
Doty was one of 19 U.S. delegates who participated in the fourth annual Dialogue, held in Beijing May 3 and May 4. In an e-mail statement, Doty says he met with Guo Shuqing, chairman of the China Securities Regulatory Commission, and representatives of the Ministry of Finance for discussions he characterized as substantive and productive. “Further progress was made that would enable the PCAOB to observe inspections conducted by the Chinese authorities as a first step toward greater cooperation on cross-border audit oversight and joint inspections,” he says.
Doty says he's grateful for the support of the U.S. Treasury Department and the Federal Reserve, which enabled him to participate in the Dialogue and pursue discussions regarding the PCAOB's objective to establish joint inspections. “In the coming days, we will be following up on our discussions with the Chinese authorities to finalize the details,” he says.
China and parts of the Europe Union remain major holdouts as the PCAOB continues to negotiate agreements with various countries to conduct inspections. The board most recently reached a new cooperative agreement with the German Auditor Oversight Commission regarding how to oversee firms that operate in both jurisdictions. Doty said the board is pleased with its progress in overcoming obstacles to conduct inspections in EU member states.
The board has agreements in place with the United Kingdom, the Netherlands, Switzerland, Norway, Japan, Israel, Taiwan, and Dubai as it continues to pursue cooperation with regulators in other jurisdictions. The PCAOB is charged with regulating more than 900 foreign firms that are located in 88 countries.