On April 21, 2020, the U.S. Securities and Exchange Commission Chair, Chief Accountant and Divisions of Corporation Finance and Investment Management Directors, together with the Public Company Accounting Oversight Board Chair, issued a public statement to companies based in or with significant operations in emerging markets.

The Statement advised the issuers, their respective audit committees and auditors to (1) prepare and provide high-quality, reliable financial information and other disclosures and (2) provide accurate and complete risk disclosures peculiar to their businesses and operations in emerging markets, including:

• the issuers’ greater industry- and jurisdiction-specific risks and uncertainties compared to those based or operating in established markets;
• the difference in scope and quality of disclosure requirements in emerging markets despite appearing similar in form;
• the PCAOB’s lack of access to the work of PCAOB-registered accounting firms in China, the largest emerging market economy;
• the limited ability and substantial difficulty of SEC, U.S. Department of Justice and other authorities to pursue non-U.S. bad actors in certain emerging markets;
• the difficulty or impossibility for shareholders to enforce their rights or pursue shareholder claims as a matter of law or practicality in many emerging markets; and
• the absence of regard to the investor’s exposure to emerging market risks by index funds tracking a specific emerging market index.

The Statement urged investment advisers that are recommending investments in emerging markets to consider, as part of their due diligence, the sufficiency of an issuer’s emerging market risk disclosures, whether there are limitations on the quality or availability of financial information with respect to these investments, possible limitations on investors’ legal remedies, the effect of market closures on investments and ability to gain access to investors’ assets.

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