Just recently, U.S. Securities and Exchange Commission (SEC) joint by Public Company Accounting Oversight Board (PCAOB) released a public statement on audit and information access challenges with U.S. listed companies operating in China. It’s not news that Chinese companies have been flocking to the US for a listing. Major U.S. media today covered the news on Tencent music, the Chinese music streaming company, raised close to $1.1 billion after NYSE debut on December 12.
The public statement is co-issued by SEC Chairman Jay Clayton, SEC Chief Accountant Wes Bricker and PCAOB Chairman William D. Duhnke III. It stresses the importance of “complete and accurate financial statement and credible audits” is indisputable the foundation of U.S. capital market system. Therefore, 224 U.S. listed companies operating in China are named in the statement where the PCAOB faces obstacles in auditing and inspection. Companies named include many industry leading players, for example Alibaba, Baidu, 58.com, Sogou, and Weibo, along with others.
In attempt to inform the public and investors in the U.S. capital market on the current challenges faced by audit firms and regulators, SEC and PCAOB point out “efforts with Chinese regulators to improve information access and audit inspection are ongoing but we have not yet made satisfactory progress.” Furthermore, the statement emphasizes that external audits of multinational companies and regulatory oversight require global coordination.
Citing from the statement, “the barriers to information access discussed may adversely affect investors in the U.S. markets and the interests they own in companies that are China based or have significant operations in China, including because they reduce the certainty provided by U.S. law and oversight.” The U.S. investors may still have risk even when the company’s financial statement is completed and accurately audited as they may “price protect” the risk “by increasing the companies’ cost of capital.”
As conclusion, SEC and PCAOB mention “remedial actions” maybe applied if the information access issue persists, which may include “requiring affected companies to make additional disclosures and placing additional restrictions on new securities issuances” from past experiences.