The cold war in accounting oversight heats up
Over the past decade many Chinese-based companies have listed in the US. For the larger stocks, such as PetroChina, China Mobile and CNOOC, the American Deposit Receipt (ADR) represents a secondary listing, and often Hong Kong is the primary place of listing.
However for about 200 smaller stocks (with an aggregate market capitalisation of US$84 billion), the US is their primary market.
The vast bulk of these companies are audited by joint ventures of the Big 4 Accountants including, PWC ZhongTian, KPMG HuaZhen, E&Y HuaMing and Deloitte HuaYong.
Any company listed on a US stock exchange needs to be audited by an auditor registered with the Public Company Accounting Oversight Board (PCAOB).
This oversight board was created with the Sarbanes-Oxley Act of 2002 to increase US government supervision on the accounting industry.
While the Public Company Accounting Oversight Board may inspect the audit papers of those firms auditing the companies listed on a US stock exchange, China has prohibited the joint venture audit firms, detailed above, from handing over their audit papers.
Threatened with a violation of the State Secrets Act, the Chinese accounting joint venture firms have refused to comply with the PCAOB who, in turn, are failing to do their job.
There have been numerous well publicised cases of Chinese accounting scandals, and the US Securities Exchange Commission last week filed suit against the Chinese accounting joint venture firms for their non compliance.
The cold war in accounting oversight is now heating up and it appears any Chinese-based company listed on a US stock exchange may be at risk of delisting.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
