US and China reach landmark audit inspection deal

Washington and Beijing have reached a landmark agreement that would allow US regulators access to audits of Chinese companies that are listed on American exchanges, a breakthrough in talks that have languished for more than a decade.

The Public Company Accounting and Oversight Board, an auditor watchdog, would have the power to select the firms, audit engagements and potential violations it inspects and investigates, without consulting Chinese authorities.

Beijing has not allowed foreign regulators to inspect Chinese company audits, citing a desire to protect state secrets. This month, five state-owned Chinese companies said they would voluntarily delist from US exchanges before they were ousted in 2024 as a result of the pending ban.

Despite the agreement, US regulators were still cautious about the success of the deal.

“Make no mistake, though: The proof will be in the pudding,” Securities and Exchange Commission chairman Gary Gensler said in a statement. “This agreement will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China,” he said. “If it cannot, roughly 200 China-based issuers will face prohibitions on trading of their securities in the US if they continue to use those audit firms.”