China Herald: Big Four China trouble needs diplomatic steps

The ongoing dispute where the China units of the Big Four accounting firms are banned from auditing US-listed companies, might drag into next year, fears accounting expert Paul Gillis, missing the fillings for April 2015. He pleads for a negotiated solution, but is not hopeful China and the US can work out a deal.

Paul Gillis:

Relationships between the U.S. and China have been cooling, partly because of issues related to China’s neighbors. But the U.S. action to charge five Chinese soldiers with hacking into U.S. computers this week is certainly not going to warm things up. But perhaps both sides will be looking for an issue to cooperate on, and maybe that will be accounting regulation.

But how much room does the United States have to negotiate? China wants the U.S. to accept a concept known as regulatory equivalence. China has that deal on accounting regulation with the European Union. If a Chinese regulator like the MOF or CSRC regulates a Chinese accounting firm, EU accounting regulators are to accept that work as if it were their own work. U.S. laws generally do not provide for U.S. regulators outsourcing their responsibilities to foreign regulators. Amendments to Sarbanes Oxley allow greater exchange of information with foreign regulators, but do not go so far as to allow U.S. regulators to outsource their responsibilities to foreign governments. Conservatives who already panic when a American judge reads a foreign legal opinion for ideas to solving a U.S. case are unlikely to agree to change the rules to accommodate regulatory equivalency. There is also the question of focus and expertise. Would a Chinese regulator have the skills to determine whether accounts were prepared under U.S. GAAP and audited under PCAOB auditing standards? Would they even have any interest in looking into U.S. listed Chinese companies? History indicates they will not. No Chinese company or executive has been charged with a Chinese crime related to the many heists that have taken place in U.S. listed Chinese companies, even when Chinese laws have clearly been broken.

I am becoming increasingly pessimistic about a positive outcome.

More at Paul Gillis´ ChinaAccountingBlog.

Beida professor Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you looking for other financial experts on China? Do check our updated list here.