China says willing to work with U.S. on audit deal as challenges loom

By Xie Yu

HONG KONG (Reuters) – China’s securities watchdog on Thursday said that it was willing to work with its counterparts in the United States to promote regulatory cooperation on audits and safeguard the rights and interests of global investors.

The China Securities Regulatory Commission (CSRC) was commenting a day after a U.S. accounting watchdog said that it found unacceptable deficiencies in audits of U.S.-listed Chinese companies.

“We noticed that the U.S. regulator said the deficiencies they found this time were normal for a first-time inspection,” it said in a statement responding to a Reuters’ request for comment, adding that Beijing would continue to work with the U.S.

The U.S. Public Company Accounting Oversight Board (PCAOB) published the findings of its inspections on Wednesday, after gaining access to auditors’ records of the companies under a deal reached in September last year.

That access, gained after more than a decade of negotiations with Chinese authorities, kept roughly 200 China-based public companies including Alibaba (NYSE:) and JD (NASDAQ:).Com from potentially being kicked off U.S. stock exchanges.

The CRSC statement said “the inspection report also didn’t conclude that the audit opinions by relevant auditors were inappropriate,” and that it believed the deficiencies found would help auditing firms rectify their problems and improve quality.

Analysts said the deficiencies found by the U.S. watchdog were unlikely to derail the audit deal, but it would be challenging to turn around practices quickly amid continued U.S.- China tensions.

“Generally, the PCAOB expected high rates and these are not surprising in the short-term,” said Jackson Johnson, a former PCAOB inspector and president of Johnson Global Accountancy, an audit advisory firm based in Nevada, adding that there was a lot of work to be done to improve the results before the next inspection.

Law firm Wilson Sonsini’s senior partner Weiheng Chen said although the deficiency rate in the PCAOB findings was much higher than the average of its reviews, the results would not lead to the re-statement of a company’s financial statements.

“So these deficiencies alone would not cause any stock delisting.”

Paul Gills, a professor of accounting at Beijing International Studies University, said the PCAOB statement appeared to be strong-worded, but deficiencies had been expected.

“I assume most of the issues have already been tackled by the auditors…Even though politics are not supposed to enter into it, they obviously do. And if they (PCAOB) appeared to be too accommodating, they would really get a lot of criticism…accusing them of being soft on China,” he said.

Reuters reported in March that the PCAOB has started a new round of inspections in Hong Kong as part of the deal, which is a rare bright spot in Sino-US relations at a time when some business leaders have voiced concerns about the decoupling of the world’s two largest economies.