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In August, the PCAOB reached a tentative deal with China’s securities regulators to permit the PCAOB to fully inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.  Although the PCAOB was willing to move forward on the basis of the deal, they didn’t exactly sound optimistic about its outcome. But because implementation of the Holding Foreign Companies Accountable Act could ultimately result in the wholesale delisting of China-based companies, Chinese authorities presumably had some incentive to play ball.

Yesterday, PCAOB Chair Erica Williams issued a statement about actions taken by the PCAOB based on its experience to date inspecting China-based firms under the accord. That statement took a slightly more optimistic tone. Here’s an excerpt:

For the first time in history, the PCAOB has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. And this morning the Board voted to vacate the previous determinations to the contrary.

This historic and unprecedented access was only possible because of the leverage Congress created by passing the Holding Foreign Companies Accountable Act. Congress sent a clear message with that legislation that access to U.S. capital markets is a privilege and not a right, and China received that message loud and clear.

Investors are more protected today because of Congress’ leadership, and I want to thank Members of the House and the Senate for their ongoing work to hold China accountable.

I want to be clear: this is the beginning of our work to inspect and investigate firms in China, not the end. The PCAOB is continuing to demand complete access in mainland China and Hong Kong moving forward. Our teams are already making plans to resume regular inspections in early 2023 and beyond, as well as continuing to pursue investigations.

The Board does not have to wait another year to reassess its determinations. Should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access – in any way and at any point in the future – the Board will act immediately to consider the need to issue a new determination.

It is important to understand: today’s announcement is about one question and one question only – is the PCAOB able to inspect and investigate firms in mainland China and Hong Kong completely at this time? The answer, following thorough and systematic testing, is yes.

The statement goes on to say that the PCAOB found numerous potential deficiencies in its inspection, but that these results weren’t out of line with what would be expected for firms in other jurisdictions being subjected to inspection for the first time.

– John Jenkins