China Says It's Willing to Work With US on Audit Deal as Challenges Loom
China's securities watchdog on Thursday said it was willing to work with its counterparts in the United States to promote audit regulatory cooperation and safeguard the rights and interests of global investors. The comment from the China Securities Regulatory Commission, or CSRC, came a day after a U.S. accounting watchdog said it had found unacceptable deficiencies in audits of U.S.-listed Chinese companies. The CSRC, in a statement made in response to Reuters' request for comment, said that the watchdog deemed the deficiencies normal and that Beijing would continue to work with the U.S. Analysts said the deficiencies that the U.S. watchdog found were unlikely to derail an audit deal the two countries struck in September, but it would be challenging to turn around auditing practices quickly amid continued U.S.-China tensions. The U.S. Public Company Accounting Oversight Board, or PCAOB, published the findings of its inspections on Wednesday after gaining access to Chinese company auditors' records for the first time last year. The inspections were carried out following more than a decade of negotiations with Chinese authorities. That access, gained as a result of the September deal, kept roughly 200 China-based public companies, including Alibaba and JD.com, from potentially being kicked off U.S. stock exchanges. "We noticed that the U.S. regulator said the deficiencies they found this time were normal for a first-time inspection," the CSRC said in its statement, referring to the PCAOB. "The inspection report also didn't conclude that the audit opinions by relevant auditors were inappropriate," said the CSRC, adding it believed the deficiencies found would help auditing firms rectify their problems and improve quality. Auditors of Chinese companies based in the mainland and in Hong Kong will have to do a lot of work to fix the findings, said analysts and former regulators. "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 in Nevada. He said that since auditors would need to turn around the results prior to the next inspection, there was a lot of work to be done. Law firm Wilson Sonsini's senior partner Weiheng Chen said that although the deficiency rate in PCAOB findings was much higher than the average of its reviews, the deficiencies would not result in the restatement of a company's financial statements. "So, these deficiencies alone would not cause any stock delisting," Chen said. Reuters reported in March that the PCAOB had started a new round of inspections in Hong Kong as part of the deal, which is a rare bright spot in Sino-U.S. relations at a time when some business leaders have voiced concerns about the decoupling of the world's two largest economies. "We are willing to work with the U.S. regulator and continue to push forward audit cooperation based on experiences, mutual respect and trust, and build a normalized, sustainable cooperation mechanism," said the CSRC.