A bipartisan House bill would again increase the frequency with which auditors of Chinese companies must be inspected by the PCAOB under the Holding Foreign Companies Accountable (HFCA) Act.
H.R. 4879, the Holding Chinese Listed Companies Accountable Act, is sponsored by Representative Blaine Luetkemeyer, a Missouri Republican, with Representative Brad Sherman, a California Democrat, joining as a cosponsor.
The HFCA Act, signed into law in 2020, addressed a standoff between U.S. audit regulators and the Chinese government over the latter’s refusal to allow inspections of audits for U.S.-listed companies from China and Hong Kong. Under the law, those companies would be subject to a trading ban in the U.S. after three consecutive non-inspection years, which Congress later shortened to two years.
The Luetkemeyer-Sherman bill, introduced on July 25, 2023, would amend the Sarbanes-Oxley Act of 2002 to cut another year from that timeline and require annual audit inspections specifically for Chinese issuers.
“We have the most robust capital markets in the world, and laws in place to ensure their integrity,” Luetkemeyer said in a statement. “If we are going to allow CCP-affiliated companies – which have repeatedly displayed their preference for dishonestly and corruption – to be listed on our exchanges, they must meet the highest level of standards.”
The PCAOB and Chinese authorities in August 2022 struck a landmark pact for on-site audit inspection, and in December, the PCAOB said it had gained complete access to inspect and investigate audit firms based in mainland China and Hong Kong. (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.)
Earlier this month, the SEC’s Division of Corporation Finance (CorpFin) provided a staff sample letter addressing disclosure requirements for China-based companies, including disclosures required under the HFCA Act. (See SEC Staff Publishes Sample Comment Letter to Chinese Companies to Prompt Better Disclosures in the July 24, 2023, edition of ACA.)
This article originally appeared in the July 27, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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