© Reuters. FILE PHOTO: The emblem of accounting agency PricewaterhouseCoopers (PwC) is seen on a board on the St. Petersburg Worldwide Financial Discussion board (SPIEF), Russia, June 6, 2019. REUTERS/Maxim Shemetov
By Chris Prentice and Michelle Value
WASHINGTON (Reuters) – A U.S. accounting watchdog discovered unacceptable deficiencies in audits of U.S.-listed Chinese language firms carried out by KPMG in China and PricewaterhouseCoopers in Hong Kong, the federal government company mentioned on Wednesday.
The U.S. Public Firm Accounting Oversight Board (PCAOB)printed the findings of its inspections after getting access to Chinese language firm auditors’ information for the primary time final yr following greater than a decade of negotiations with Chinese language authorities. That entry saved roughly 200 China-based public firms from doubtlessly being kicked off U.S. inventory exchanges.
The deficiencies have been so nice that auditors didn’t acquire sufficient proof to substantiate firms’ monetary statements, PCAOB Chair Erica Williams advised reporters on Wednesday. The companies, two of the so-called “Massive 4” in international accounting, symbolize 40% of the market share of U.S.-listed firms audited by Hong Kong and mainland China companies, she mentioned.
PricewaterhouseCoopers (PwC) in Hong Kong mentioned it’s working with the PCAOB to handle points raised and famous the inspection report marks an vital milestone for U.S. and Chinese language cooperation. KPMG Huazhen in China mentioned in a press release it has taken steps to handle the problems the PCAOB had discovered.
Whereas the company mentioned it normally discovers issues when first getting access to a international nation’s audit information, the deficiencies might increase worries amongst traders over the accuracy of U.S.-listed Chinese language firms’ public monetary statements. Some traders, although, mentioned the findings might finally assist enhance Chinese language firm accounting.
“The truth that we discovered so many deficiencies is known as a signal that the inspection course of labored, and now we will go in regards to the work of holding companies accountable and driving audit high quality,” Williams mentioned.
The company mentioned it inspected eight audits. It didn’t disclose which firms’ audits it had chosen for inspection, however Reuters has beforehand reported that Alibaba (NYSE:) Group Holding and Yum China Holdings (NYSE:) have been amongst them.
The 2 firms didn’t instantly reply to requests for remark.
“We shouldn’t be shocked that deficiencies have been discovered,” mentioned Brendan Ahern, chief funding officer of Krane Funds Advisors, which operates China-focused funds. “One would assume the auditors will take the steerage and modify their practices going ahead.”
The PCAOB will give the 2 auditors a yr to remediate deficiencies round quality control, and the company will make referrals to the company’s enforcement workforce the place acceptable, Williams mentioned. Such investigations might finally result in financial penalties or barring audit companies from doing work for U.S.-listed firms.
PCAOB officers have already begun fieldwork for 2023 inspections. With its 2023 work, the PCAOB expects it is going to have inspected auditors representing 99% of the work within the area.
The company will proceed to demand full entry to do its work, Williams mentioned. If Chinese language authorities start to restrict entry for inspections and investigations, a U.S. regulation agreed to final yr units a two-year clock for compliance or ouster from American exchanges.
(This story has been corrected to alter the corporate’s title to ‘Yum China’ from ‘Yum! Manufacturers (NYSE:)’ and to repair the Reuters Instrument Code in paragraph 7)