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China asks companies, auditors to prepare for U.S. inspections in Hong Kong: sources

Xie Yu and Julie Zhu

HONG KONG (Reuters) – Three sources familiar with Beijing have asked some U.S.-listed Chinese companies and their audit firms to provide U.S. listings in Hong Kong Preparations for the inspections told Reuters, as part of efforts to end a decade-long audit dispute.

The China Securities Regulatory Commission (CSRC) recently issued an oral notice to some auditing firms advising them to start preparing the paperwork to transfer staff and documents to Hong Kong, one of the sources said on Friday.

It asked them to do so because it hoped the countries would soon reach an agreement to resolve the dispute regarding audit compliance of Chinese companies listed in the U.S., the source added.

U.S. regulators have long demanded audit documents from U.S.-listed Chinese companies, but Beijing has been reluctant to allow overseas regulators to inspect accounting firms over security concerns.

However, the China Securities Regulatory Commission recently notified Chinese-funded companies listed in the United States that they should prepare for the transfer of audit working papers and other related materials from the mainland to Hong Kong in preparation for future on-site inspections in the United States. The other two sources said.

Hong Kong will become an on-site inspection center for U.S. regulators, and Chinese companies listed in the U.S. will have to transfer their working papers to Hong Kong, according to the latest proposal drafted by U.S. regulators. SFC, the second source said.

The sources asked not to be named because they were not allowed to speak to the media on the matter.

The SEC did not respond

The Public Company Accounting Oversight Board (PCAOB), which oversees audits of U.S. public companies, did not respond to a Reuters request for comment outside U.S. business hours .

The U.S. and China are nearing a deal that would allow U.S. account regulators to travel to Hong Kong to inspect the audit records of Chinese companies listed in New York, The Wall Street Journal reported on Thursday.

Delisting risk

Friday, 163 companies, including Alibaba (NYSE: BABA) Group, (Nasdaq: JD).Com Inc, NIO Motors face trading ban by U.S. regulators for failing to comply with audit requirements risk.

However, Asian shares rose on Friday, buoyed by hopes of an audit agreement between the U.S. and China to address delisting risks facing them

Reuters could not immediately confirm Whether U.S. regulators have accepted the CSRC’s recommended measures to inspect audit documents in Hong Kong.

The PCAOB said last month that it would not accept any restrictions on its full access to the audit documents of Chinese companies listed in New York and is ready to provide the necessary resources for inspections.

Current US regulations stipulate that Chinese companies that do not meet the requirements of the audit working paper will suspend their trading in the US in advance 2024. But in the next few months, the US Congress is likely to bring up the deadline for compliance to 2023 spring.

Earlier this month, five Chinese state-owned enterprises (SOEs) voluntarily applied to be delisted from New York, a move analysts believe clears the way for Beijing to reach an audit agreement with the United States.




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