 (Small).jpg)
| Nah: | ||||
The China Issue PCAOB Explained
Although EWSI is absolutely affected by this and the auditors, this is a much larger problem for ANY publicly traded company doing business in China. It is any company.
http://www.linkedin.com/today/post/article/20...l-of-china
Thank you Cindy Fornelli
James R. Doty, Chairman of the Public Company Accounting Oversight Board (PCAOB), struck an optimistic note in early February. “Together with our counterparts abroad,” Chairman Doty told the Securities and Exchange Commission (SEC), “we are moving toward more coordinated interaction among regulators on oversight of [audit] firms.”
This movement is important, and it needs to happen expeditiously regarding a major player in the global economy: China. Global coordination among regulators is sorely needed when it comes to how China-based audit firms can share information with U.S. regulators like the PCAOB.
Why’s that? For one, Chinese audit firms find themselves in a very difficult position, stuck between regulations that conflict internationally. Yet both countries insist on compliance. There is also much at stake in this issue for U.S. investors, multinational companies doing business in China, and Chinese companies selling shares on U.S. exchanges.
A Complex Issue
This issue of information sharing by Chinese auditors is complex. Here’s a rundown on key players and their roles.
•The SEC: By law, all companies that have securities registered with the SEC must have their annual financial statements audited by an independent auditor. Without current audited financial statements, companies cannot file annual reports with the SEC and cannot bring new securities offerings to market in the United States. The requirement for audited financial statements applies equally to U.S.-based and non-U.S. companies that list their securities on an exchange in the United States. Broadly speaking, the SEC has the authority under U.S. law to request documents (including audit working papers) from a foreign public accounting firm that prepares or furnishes an audit report on a U.S.-listed company, though the law allows foreign firms to make this production through their local regulator.
•The PCAOB: The PCAOB’s role includes setting auditing standards for audits of U.S. public companies, registering public company auditors, inspecting audit firms registered with it, and enforcing compliance with its rules and regulations. All audit firms that prepare or furnish audit reports for U.S.-listed companies must register with the PCAOB. This is true regardless of where the auditor is located.
•Multinational companies and their auditors: Companies generally are audited by an audit firm in their home country. Auditors of multinational companies also need to use audit firms located and licensed in other countries to perform work on the companies’ foreign operations, so that the signing auditor can provide opinions on the company’s consolidated financial statements.
•The China Securities Regulatory Commission (CSRC): The CSRC is the securities regulator in China, and effectively the counterpart of the SEC. Under a CRSC directive, audit firms cannot produce documents directly to foreign regulators. Instead, the CSRC specifies that foreign regulators must seek documents directly from the CSRC.
Complex—And Not Clear-Cut
The complexity of the situation around U.S. access to Chinese audits has been compounded by developments in court. In January 2014, SEC Administrative Judge Cameron Elliot ruled that these firms violated the law because they did not produce documents directly to the SEC, notwithstanding the conflicting Chinese law, and the firms should be barred from auditing or participating in the audits of U.S.-traded companies for six months.
The picture here, however, is far from clear. In fact, it’s downright murky. To begin with, published reports indicate that if the firms were to defy the CSRC directive, they would risk severe sanctions that could affect the ability of the firms to continue operating, as well as other consequences to individual partners in those firms, including potential imprisonment.
Moreover, it is worth noting that at the time they registered with the PCAOB, many Chinese firms disclosed on their respective PCAOB registration forms the conflict between China laws and U.S. laws regarding access to working papers. Firms from many other countries also disclosed conflicts between their local laws and U.S. laws. This is not to question the PCAOB or SEC’s authority. It simply underscores that this conflict has been generally known for some time. And because it is a conflict of laws, it is not an issue that the firms can resolve. Auditors are truly between a rock and a hard place.
So what’s the status of the case now? Murkiness remains. The Chinese firms have filed an appeal. Bloomberg recently observed that “China has signaled that diplomatic progress could be derailed if the SEC upholds the judge’s Jan. 22 decision.”
What’s at Stake for Investors, Companies
As Bloomberg noted, U.S. and Chinese regulators have made some progress on this issue. Last year, the CSRC and the PCAOB entered into an agreement for enforcement cooperation. And in recent months, the CSRC has provided certain requested audit working papers to the SEC. This is good news, because it could be a sign of continuing development of cooperation between the regulators. It is critical that the two countries continue their cooperation and dialogue. U.S. investors could be negatively affected if any bar goes into effect—or if the United States or China takes other action because they failed to reach agreement.
First, U.S. investors in China-based companies could be affected if China-based companies are unable to obtain the audit work needed to continue to access the U.S. capital markets.
Second, U.S. investors in multinational companies with China operations also could be negatively affected if a company’s signing auditor is unable to rely on a Chinese firm’s work to complete a consolidated audit.
In both cases, the loss of access to the services of Chinese audit firms could impair audit quality, reduce the competitiveness of U.S. capital markets, and harm the interests of investors in U.S. markets. That’s an outcome that everyone should work steadfastly to avoid. Continued government-to-government discussions—and resulting cooperation—are key to resolving this issue as quickly as possible.
(borrowed from Phred
Although EWSI is absolutely affected by this and the auditors, this is a much larger problem for ANY publicly traded company doing business in China. It is any company.
http://www.linkedin.com/today/post/article/20...l-of-china
Thank you Cindy Fornelli
James R. Doty, Chairman of the Public Company Accounting Oversight Board (PCAOB), struck an optimistic note in early February. “Together with our counterparts abroad,” Chairman Doty told the Securities and Exchange Commission (SEC), “we are moving toward more coordinated interaction among regulators on oversight of [audit] firms.”
This movement is important, and it needs to happen expeditiously regarding a major player in the global economy: China. Global coordination among regulators is sorely needed when it comes to how China-based audit firms can share information with U.S. regulators like the PCAOB.
Why’s that? For one, Chinese audit firms find themselves in a very difficult position, stuck between regulations that conflict internationally. Yet both countries insist on compliance. There is also much at stake in this issue for U.S. investors, multinational companies doing business in China, and Chinese companies selling shares on U.S. exchanges.
A Complex Issue
This issue of information sharing by Chinese auditors is complex. Here’s a rundown on key players and their roles.
•The SEC: By law, all companies that have securities registered with the SEC must have their annual financial statements audited by an independent auditor. Without current audited financial statements, companies cannot file annual reports with the SEC and cannot bring new securities offerings to market in the United States. The requirement for audited financial statements applies equally to U.S.-based and non-U.S. companies that list their securities on an exchange in the United States. Broadly speaking, the SEC has the authority under U.S. law to request documents (including audit working papers) from a foreign public accounting firm that prepares or furnishes an audit report on a U.S.-listed company, though the law allows foreign firms to make this production through their local regulator.
•The PCAOB: The PCAOB’s role includes setting auditing standards for audits of U.S. public companies, registering public company auditors, inspecting audit firms registered with it, and enforcing compliance with its rules and regulations. All audit firms that prepare or furnish audit reports for U.S.-listed companies must register with the PCAOB. This is true regardless of where the auditor is located.
•Multinational companies and their auditors: Companies generally are audited by an audit firm in their home country. Auditors of multinational companies also need to use audit firms located and licensed in other countries to perform work on the companies’ foreign operations, so that the signing auditor can provide opinions on the company’s consolidated financial statements.
•The China Securities Regulatory Commission (CSRC): The CSRC is the securities regulator in China, and effectively the counterpart of the SEC. Under a CRSC directive, audit firms cannot produce documents directly to foreign regulators. Instead, the CSRC specifies that foreign regulators must seek documents directly from the CSRC.
Complex—And Not Clear-Cut
The complexity of the situation around U.S. access to Chinese audits has been compounded by developments in court. In January 2014, SEC Administrative Judge Cameron Elliot ruled that these firms violated the law because they did not produce documents directly to the SEC, notwithstanding the conflicting Chinese law, and the firms should be barred from auditing or participating in the audits of U.S.-traded companies for six months.
The picture here, however, is far from clear. In fact, it’s downright murky. To begin with, published reports indicate that if the firms were to defy the CSRC directive, they would risk severe sanctions that could affect the ability of the firms to continue operating, as well as other consequences to individual partners in those firms, including potential imprisonment.
Moreover, it is worth noting that at the time they registered with the PCAOB, many Chinese firms disclosed on their respective PCAOB registration forms the conflict between China laws and U.S. laws regarding access to working papers. Firms from many other countries also disclosed conflicts between their local laws and U.S. laws. This is not to question the PCAOB or SEC’s authority. It simply underscores that this conflict has been generally known for some time. And because it is a conflict of laws, it is not an issue that the firms can resolve. Auditors are truly between a rock and a hard place.
So what’s the status of the case now? Murkiness remains. The Chinese firms have filed an appeal. Bloomberg recently observed that “China has signaled that diplomatic progress could be derailed if the SEC upholds the judge’s Jan. 22 decision.”
What’s at Stake for Investors, Companies
As Bloomberg noted, U.S. and Chinese regulators have made some progress on this issue. Last year, the CSRC and the PCAOB entered into an agreement for enforcement cooperation. And in recent months, the CSRC has provided certain requested audit working papers to the SEC. This is good news, because it could be a sign of continuing development of cooperation between the regulators. It is critical that the two countries continue their cooperation and dialogue. U.S. investors could be negatively affected if any bar goes into effect—or if the United States or China takes other action because they failed to reach agreement.
First, U.S. investors in China-based companies could be affected if China-based companies are unable to obtain the audit work needed to continue to access the U.S. capital markets.
Second, U.S. investors in multinational companies with China operations also could be negatively affected if a company’s signing auditor is unable to rely on a Chinese firm’s work to complete a consolidated audit.
In both cases, the loss of access to the services of Chinese audit firms could impair audit quality, reduce the competitiveness of U.S. capital markets, and harm the interests of investors in U.S. markets. That’s an outcome that everyone should work steadfastly to avoid. Continued government-to-government discussions—and resulting cooperation—are key to resolving this issue as quickly as possible.
(borrowed from Phred
