Securities and Exchange Commission Chair Gary Gensler cast doubt on the possibility of a deal being reached with China on access to Chinese companies’ audit reports.
“I’m not particularly confident — it’s really up to our counterparties,” Gensler said Wednesday during a media conference call, adding that “good-faith” negotiations continue “but there is a risk here.”
U.S. and Chinese officials have been negotiating for more than two years to ensure staff from the Public Company Accounting Oversight Board can access the audit papers of Chinese companies traded in the U.S.
The two sides held calls this month to further negotiations aimed at keeping about 200 Chinese stocks including JD.com Inc., Alibaba Group Holding Ltd. and Pinduoduo Inc. from losing their listings on New York exchanges, and redactions in auditors’ documents are a key barrier. Gensler declined to specify what was preventing the parties from reaching an agreement.
The SEC has long been eyeing some New York-traded firms with parent companies based in China and Hong Kong because the jurisdictions refuse to allow audit inspections by American officials.
A deadline of 2024 looms for kicking businesses off the New York Stock Exchange and Nasdaq Stock Market unless China acquiesces, but it could be moved up if U.S. lawmakers pass legislation before the end of the year. Even under the existing timeline, a deal would be necessary soon for the PCAOB to begin the next steps to send staff to China and begin inspecting companies’ audits. That will prove the true test of whether China is in compliance with the law, Gensler said.
“I think investors should be aware that Congress has spoken clearly” that the PCAOB is to have “complete” access to auditing papers, he said.
The PCAOB didn’t immediately respond to a request for comment.
