The SEC directs auditors to screen customers based in China

The Securities and Exchange Commission is urging US accounting firms to be cautious about taking on Chinese firms trading in New York as new clients.

Tuesday’s warning follows several companies moving to US auditors amid an ongoing row between regulators in Washington and Beijing over access to audit working papers, which could result in about 200 companies being delisted from American stock exchanges.

China and Hong Kong are the only two jurisdictions worldwide that have not allowed American inspection of the documents, with officials there citing national security and confidentiality concerns.

Auditors must fully screen their clients before engaging them, including making sure they get all the information they need from both a foreign company’s management team and their previous auditors, Paul Munter, the SEC’s acting chief accountant, said in a Opinion.

“Such arrangements pose special challenges that raise questions about whether the newly engaged chartered accounting firm — whether based in the US or elsewhere — will be able to fulfill their responsibilities as lead public accounting firm,” he said.

In recent months, the SEC has released a list of China and Hong Kong-based firms that could potentially be delisted if American inspectors are not authorized to review working papers, as required by US law.

Under a tentative agreement reached last month, US Public Company Accounting Oversight Board (PCAOB) watchdogs plan to travel to Hong Kong in the coming weeks to begin inspecting working papers.

“While this agreement is an important step, it remains to be seen whether the PCAOB will actually be permitted to fully inspect and investigate audit firms in China and Hong Kong under the terms of the protocol,” Mr Munter said in his statement. The SEC directs auditors to screen customers based in China

Fry Electronics Team

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