The Public Company Accounting Oversight Board has issued a research note cautioning U.S. registered accounting firms that their audits of companies with operations outside of the U.S., particularly in China, may not be in accordance with PCAOB standards if the company accessed the U.S. capital markets through a reverse merger transaction.

The public research note is a first for the PCAOB, and comes from observations during the PCAOB inspection process. The research note, entitled, “Activity Summary and Audit Implications for Reverse Mergers Involving Companies from the China Region (January 1, 2007 through March 31, 2010),” was prepared by the PCAOB Office of Research and Analysis to provide further context to the issues discussed in Staff Audit Practice Alert No. 6 issued on July 12, 2010 (see PCAOB Warns about Using Work of Foreign Auditors). 

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