An American accounting oversight board recently proposed a draft rule to advance the implementation of legislation to remove foreign firms from the US stock exchange that did not comply with the country’s accounting standards. According to South China Morning Post (SCMP), the law has been proposed to expedite a Trump-era law that would force publicly traded Chinese companies to delist from American bourses in three years if they do not share their audits for review. The legislation would provide a framework to determine whether local authorities inhibited its inspections of foreign accounting firms that audit US issuers.
The Public Company Accounting Oversight Board (PCAOB) chairman William Duhnke III said, “The rule addresses situations where overseas authorities have denied the PCAOB the access it needs to conduct its mandated oversight activities”.
The US officials informed that over 200 accounting firms from about 40 foreign jurisdictions are currently subject to inspection because they audit US-listed companies. A group of Chinese law professors, on the other hand, said that the proposed law is “obviously aimed” at Chinese companies. Professors from Peking University Law School, Tsinghua University Law School and the Institute of Law at the Chinese Academy of Social Sciences added that the law also included the “extremely unusual” requirement that companies disclose directors and executives who are members of the Chinese Communist Party.
US’ HCFA Act
Meanwhile, the latest rules come as US-China relations have reached a new low over several disputes on issues concerning human rights and trade, among others. It also comes after the Securities and Exchange Commission (SEC), which regulates the US stock markets, amended the Holding Foreign Companies Accountable Act (HCFA Act) to remove from the US stock markets foreign firms that did not comply with local accounting standards. According to ANI, the HCFA Act would allow the SEC to kick foreign companies off US stock exchanges if they did not comply with the country’s auditing standards.
SEC had said, “The SEC has adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Holding Foreign Companies Accountable Act (HFCA Act)”.
It is worth mentioning that the HCFA Act was signed back in December 2020. The act was primarily aimed at removing Chinese companies from US exchanges if they failed to comply with US auditing standards. Additionally, the law also requires firms to prove to the SEC they are not owned or controlled by an entity of a foreign government and to name any board members with such links.
(With inputs from ANI)