Great Wall of China
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The Public Company Accounting Oversight Board published a document Friday providing answers from staff members to questions about the obligations of PCAOB-registered firms when performing audits in China.

The staff Q&A document relates to the obligations of auditing firms based outside of Mainland China, particularly those based in the U.S., that provide issuer audit services they understand to be subject to certain Chinese regulations.

Last year, the Chinese Ministry of Finance implemented a new rule, known as the MOF Rule, governing the conduct of auditors based outside of Mainland China that perform audit work within the country. The PCAOB said it has received questions from registered public accounting firms about the application of certain PCAOB requirements when a PCAOB-registered firm based outside of China provides audit services in China that the firm believes are subject to the new provisions of the rule. The PCAOB has long sought access to auditing firms in China, where many of the large international firm networks often outsource work, especially to inspect their audits of Chinese companies whose shares trade on U.S. markets. However, the PCAOB has had only limited success so far in being able to inspect those firms and access their work papers.

One of the questions answered in the document is whether the MOF Rule has any impact on a firm’s obligations to provide its audit documentation and other information to the PCAOB in PCAOB inspections and investigations. The answer is no, the MOF Rule has no effect on those obligations. If the PCAOB requests a firm to provide its work papers or other information in an inspection or investigation, the PCAOB will expect the firm to ensure the materials are completely and unconditionally produced by the prescribed deadline. However, whether the firm also discloses the demand to Chinese authorities is the firm’s decision.

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.