U.S.-China Accounting Accord Boosts Credibility of Chinese Listed Companies

A summit in Washington this July could fill in some of the gaps in a financial reporting agreement that U.S. and Chinese regulators reached in May, possibly opening the door to new U.S. listings of Chinese companies.

 

"Regulators have been working on a Memorandum of Understanding (MOU) for a number of years. There have been many challenges onboth sides, but I think it spells out how to re-establish the credibility of Chinese companies," said Drew Bernstein, Managing Partner of Marcum Bernstein & Pinchuk LLP, an accounting firm with a substantial practice in China. "The agreement reached in May is a big step forward. The July meeting could shore up some of the gaps that were not resolved earlier."

 

Bernstein commented to CCTV about the MOU, which he feels was limited in scope despite it being a step forward for Chinese companies listing their stock in the United States. In CCTV's segment about MOU, the upcoming economic summit and what it means for markets, the report featured additional comments from Baidu Inc. CFO Jennifer Li and Paul Gillis, Professor of Practice at Peking University's Guanghua School of Management.

 

China's IPO market has been in a deep freeze, going approximately eight months without a listing after China's Securities Regulatory Commission heightened requirements for listing new issues in October 2012. Chinese securities regulators say those actions were "intended to address the issues of inaccurate or false financial information and frauds in IPOs and listings."

 

The US-China Strategic Economic Dialogue - to be held July 8-12 in Washington - will focus on addressing the challenges and opportunities that both countries face on a wide range of bilateral, regional and global areas of immediate and long-term economic and strategic interest. In late May, the U.S. Public Company Accounting Oversight Board signed a memorandum of understanding with Chinese regulators to provide each other with auditing documents.

 

Bernstein said the biggest gaps in the memorandum of understanding pertain to law enforcement and It does not apply to Public Company Accounting Oversight Board (PCAOB) inspections and many other situations that may not have escalated to a lawsuit. China and the United States can deny assistance with the other country when a request is made that would violate its own domestic laws or matters of national interest - reasons why China has declined to share materials with the U.S. Securities and Exchange Commission.

 

This agreement, however, does offer a mechanism for auditors in China to comply with U.S. subpoenas, Bernstein said.
 

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