What’s Driving US-China Spat Over Audits, Delistings
A trader on the floor of the New York Stock Exchange.
Photographer: Scott Eells/Bloomberg
About 200 Chinese companies whose shares trade in the US, including JD.com Inc. and Baidu Inc., are facing the prospect of being delisted from New York exchanges if American regulators continue to be blocked from fully reviewing their audit documents. The companies say Chinese national security law prohibits them from turning over the work papers. A preliminary agreement between Beijing and Washington could lead to a resolution of the decades-long dispute over access.
The 2002 Sarbanes-Oxley Act, enacted after the Enron Corp. accounting scandal, requires that publicly traded companies make their audit work papers available for inspection by the Public Company Accounting Oversight Board, or PCAOB. According to the US Securities and Exchange Commission, more than 50 jurisdictions work with the board to allow the reviews while only two -- China and Hong Kong -- don’t. The discrepancy drew attention when Chinese chain Luckin Coffee Inc., which was listed on Nasdaq, was found to have intentionally fabricated a chunk of its 2019 revenue. In 2020, Congress passed the Holding Foreign Companies Accountable Act (HFCAA), which says companies can’t trade on US exchanges if American inspectors can’t review their audits for three consecutive years.