On August 26, 2022, the Public Company Accounting Oversight Board (PCAOB) signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S law.
This is the most detailed and prescriptive agreement the PCAOB has ever reached with China. It includes three provisions that, if abided by, would grant the PCAOB complete access for the first time:
Additional Background: The PCAOB inspects and investigates registered public accounting firms in more than 50 jurisdictions around the world, consistent with its mandate under the Sarbanes-Oxley Act. But, for more than a decade, the PCAOB’s access to inspect and investigate registered public accounting firms in mainland China and Hong Kong has been obstructed.
In 2020, Congress passed the Holding Foreign Companies Accountable Act (HFCAA). Under the HFCAA, beginning with 2021, after three consecutive years of PCAOB determinations that positions taken by authorities in the People's Republic of China (PRC) obstructed the PCAOB’s ability to inspect and investigate registered public accounting firms in mainland China and Hong Kong completely, the companies audited by those firms would be subject to a trading prohibition on U.S. markets. Such a trading prohibition would be carried out by the Securities and Exchange Commission (SEC) and would apply to companies the SEC identifies as having used registered public accounting firms in mainland China and Hong Kong for three consecutive years.
In 2021, the PCAOB made determinations that the positions taken by PRC authorities prevented the PCAOB from inspecting and investigating in mainland China and Hong Kong completely.
The PCAOB is now required to reassess its determinations by the end of 2022.