“Accounting Cliff” Looms for Public Companies with Operations in China


The Public Company Accounting Oversight Board (PCAOB) has been trying to exercise its oversight responsibilities with regard to registered accounting firms in China for years, but so far has been prevented from doing so by PRC authorities. If the PCAOB cannot complete its inspections of these firms by December 31, the firms may be deregistered, and U.S.-listed companies with operations in China could find themselves with a new reason to fear they will not be able to comply with their obligation to file audited financial statements with the Securities and Exchange Commission. Meanwhile the SEC’s brief filed in the Deloitte case paints a gloomy picture of any possible agreement with the Chinese authorities.

There are hundreds of U.S. public companies whose principal operations are in China. All of them must file financial statements with the Securities and Exchange Commission (SEC), and certain of those financial statements must be audited by an accounting firm registered with the PCAOB. Often the accounting firm is the PRC affiliate of an international accounting firm.

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