China and US regulators move on US-listed Chinese firms - Paul Gillis

Paul Gillis

Both Baidu and Alibaba might be the first US-listed Chinese companies whose books are going to be checked buy the US regulator PCAOB, after a decade-long stale-mate where China refused such controls, citing state security. Accounting professor Paul Gillis is carefully optimistic, he tells the Wall Street Journal, but warns it is not yet a done deal.

The Wall Street Journal:

It is still possible the Alibaba- and Baidu-related inspections might not proceed. The audit documents provided to the PCAOB may be heavily redacted and the board may face other restrictions in conducting the inspections, said the people familiar with the situation, raising questions about whether the board will be allowed to conduct the thorough inspections it is seeking. 

The move toward inspections is a “good first step” in thawing relations between U.S. and Chinese regulators, said Paul Gillis, an accounting professor at Peking University’s Guanghua School of Management. “But that doesn’t mean that the inspections will be meaningful.” 

Mr. Gillis says he expects audit work papers to be moved to Hong Kong for inspection, a way to ease the Chinese government’s concerns about foreign regulators working on Chinese soil.... 

In theory, the impasse over inspections could lead the U.S. to bar audit firms that haven’t been PCAOB-inspected from auditing U.S.-traded companies, which would force those companies to find an acceptable auditor or be delisted. U.S. regulators have continually held back from such a step, however. 

The Chinese “are trying to do whatever is necessary to prevent a disaster, which is their companies being delisted,” said Mr. Gillis. “U.S. regulators are trying to make this problem go away.”

More in the Wall Street Journal.

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