Congress on Dec. 23, 2022, passed a $1.66 trillion government spending bill and avoided a partial government shutdown. And included is a provision that turns up the pressure on China to continue to give the PCAOB unconditional access to inspect audit firms whose clients trade on U.S. exchanges. It threatens a trading ban on Chinese companies in a shortened timeframe.
After Congress passed the Holding Foreign Companies Accountable (HFCA) Act two years ago, the PCAOB signed a historic agreement in August and in the fall was able to conduct inspections of Chinese and Hong Kong auditors without any hindrance for the first time. This was possible because HFCA, among other things, state that if firms fail to comply with the audit regulatory board’s inspections requirement for three consecutive years, then the issuer will face a trading ban. (See Aided by Legislation, U.S. Audit Regulator Got Full Access to Inspect Chinese Audit Firms for First Time in the Dec. 16, 2022, edition of Accounting & Compliance Alert.)
The omnibus spending package shortens that time frame from three to two years.
The trading prohibitions provision is sponsored by Representative Brad Sherman, a Democrat from California.
“Investors are better protected today because Congress created the leverage the PCAOB needed to force China to open the books for the first time in history,” PCAOB Chair Erica Williams said in a statement. “Cranking up the pressure now will help us hold China’s feet to the fire and keep investors protected as we continue demanding complete access moving forward.”
Because the PCAOB determined that it was given complete access to inspect Chinese auditors, the clock on trading ban stopped—at least for now. Anytime the board finds that it is unable to do its job, the clock towards a trading prohibition will start to tick again.
In the meantime, the SEC is funded through an appropriations process, and its budget is set at $2.149 billion. That amount matches the total fiscal 2023 request by the commission.
The omnibus spending package funds the federal government through Sept. 30, 2023.
This article originally appeared in the December 27, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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