China Asks Firms, Auditors To Prepare For U.S. Scrutiny In HK

Beijing has asked some US-listed Chinese companies and their audit firms to prepare for American inspections in Hong Kong, three sources familiar with the matter told Reuters, as part of efforts to end a more than decade-old audit dispute, Xie Yu and Julie Zhu reported for Reuters.

Photo Insert: Current US rules stipulate that Chinese companies that are not in compliance with audit working papers requests will be suspended from trading in America in early 2024.

The China Securities Regulatory Commission (CSRC) recently gave verbal notices to some audit firms, advising them to start preparing paperwork to move staff and documents to Hong Kong, one of the sources said on Friday.

It is asking them to do so as it expects the countries to reach an agreement soon to resolve the dispute over the auditing compliance of US-listed Chinese firms, the source added.

US regulators have for long been demanding access to audit papers of Chinese companies listed in America, but Beijing has been reluctant to let overseas regulators inspect accounting firms, citing security concerns.

But the CSRC recently informed US-listed Chinese firms that they should be prepared to transfer audit working papers and other relevant material from the mainland to Hong Kong for future US on-site inspections, the other two sources said.

Hong Kong will become the on-site inspection hub for US regulators and Chinese companies listed in America will have to transfer their working papers to the city, as per the latest proposal drafted by the CSRC, the second source said.

By Friday, 163 companies, including Alibaba Group, JD.Com Inc, and NIO INC had been identified by the US regulator as facing trading prohibition risks for not complying with audit requirements.

Current US rules stipulate that Chinese companies that are not in compliance with audit working papers requests will be suspended from trading in America in early 2024. But there is a chance that in the coming months the US Congress may move up the deadline to comply to the spring of 2023.

Earlier this month, five Chinese state-owned enterprises (SOEs) voluntarily filed to delist from New York, a move interpreted by analysts as removing a hurdle for Beijing to strike an audit deal with the United States.

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