The Public Company Accounting Oversight Board (PCAOB) signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China to open access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.
The PCAOB inspects and investigates registered public accounting firms in more than 50 jurisdictions around the world, consistent with its mandate under the Sarbanes-Oxley Act. However, the PCAOB’s access to inspect and investigate registered public accounting firms in mainland China and Hong Kong has been obstructed. Congress passed the Holding Foreign Companies Accountable Act (HFCAA) in 2020 to remedy that.
“The U.S. Congress sent a strong message with the passage of the Holding Foreign Companies Accountable Act that access to the U.S. capital markets is a privilege, not a right,” PCAOB Chair Erica Williams said. “The PCAOB has been working to execute our mandate under the law.
This new agreement with Chinese authorities contains three key provisions that would grant the PCAOB complete access for the first time. One, it gives PCAOB sole discretion to select the firms, audit engagements, and potential violations it inspects and investigates – without consultation with, nor input from, Chinese authorities. Two, it puts procedures in place for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed. Three, it gives the PCAOB direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates.
“On paper, the agreement signed today grants the PCAOB complete access to the audit work papers, audit personnel, and other information we need to inspect and investigate any firm we choose, with no loopholes and no exceptions. But the real test will be whether the words agreed to on paper translate into complete access in practice,” Williams said. “Today, I directed the PCAOB inspection team to finalize their preparations to be on the ground by mid-September so we can put this agreement to the test.”
Williams said her organization has been preparing for this for months and is ready to work swiftly but thoroughly, to carry out its inspections and investigations.
“While we have much more work to do, we would never have gotten to where we are today without the work of the U.S. Congress, and I am grateful to Members of Congress for their ongoing leadership as the PCAOB continues our work to carry out the law,” Williams said. “I want to thank my fellow PCAOB Board Members, Chair Gensler, and the Securities and Exchange Commission for their support of the PCAOB’s efforts throughout this process, and our talented PCAOB staff – those who worked tirelessly to get to today’s agreement and those whose continued efforts will put it to the test. Now our work continues, guided by the same mission that guides everything we do at the PCAOB: protecting investors.”