Audit Oversight Cooperation Agreement has been entered into by and between China and the US
ISSUING AUTHORITIES:
China Securities Regulatory Commission, Ministry of Finance
U.S. Public Company Accounting Oversight Board
DATE OF ISSUANCE:
August 26, 2022
China Securities Regulatory Commission (CSRC), Ministry of Finance (MOF) of the People’s Republic of China and Public Company Accounting Oversight Board (PCAOB) of the US entered into an audit oversight cooperation agreement (the “Agreement”) on August 26, 2022, which will advance mutual cooperation in the near future.
On the same day, CSRC officials answered reporters’ questions regarding the Agreement and made explanations as follows.
The Agreement mainly sets forth arrangements for both sides to cooperate in conducting inspections and investigations on relevant audit firms.
First, the Agreement is equally binding on both sides. Regulators from both China and the US can conduct inspections and investigations on relevant audit firms in the other’s jurisdiction pursuant to their statutory mandates, and the requested authority shall provide assistance to the fullest extent permitted by applicable laws.
Second, the scope of cooperation includes assisting with the inspections and investigations on relevant audit firms taken by the authorities. The assistance by the Chinese side also covers inspections and investigations on certain audit firms located in Hong Kong SAR to the extent that they audit Chinese companies listed in the US and maintain audit work papers of such engagements in the Chinese mainland as required by relevant regulations.
Third, the two sides shall coordinate in advance to plan for inspections and investigations. The materials such as audit work papers that the US regulators need access to shall be obtained by and transferred through the Chinese side. The Chinese side will also take part in and assist in the interviews and testimonies on relevant personnel of audit firms requested by the US side.
The oversight of audit firms usually involves audit work papers since the audit work papers of selected issuers are required to be subject to review when examining the audit quality. With regard to potentially sensitive information in audit work papers, CSRC officials noted that, in particular, CSRC and relevant authorities revised the Provisions on Strengthening Confidentiality and Archives Administration in Overseas Issuance and Listing of Securities (《关于加强在境外发行证券与上市相关保密和档案管理工作的规定》), which set out clear requirements on information security regarding audit work papers. The document further strengthens the primary responsibility of listed companies on information security and lays out a clear and operable guidance for the companies and accounting firms to store and handle state secrets and sensitive information in accordance with law.
Under the Agreement, audit work papers and other information that the US regulators need access to will be obtained by and transferred through Chinese regulators. Meanwhile, the Agreement has also made clear arrangements on the treatment and use of possible sensitive information during audit oversight cooperation, including procedures for processing personal information and other specific data categories. It provides a feasible path for both sides to discharge their regulatory mandates while protecting relevant information.
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