The US-China Audit Oversight Dispute: Causes, Solutions, and Implications for Hong Kong

33 Pages Posted: 26 Nov 2020 Last revised: 31 Mar 2021

See all articles by (Robin) Hui Huang

(Robin) Hui Huang

Chinese University of Hong Kong - Faculty of Law; 华东政法大学(East China University of Political Sicence and Law); University of New South Wales - Faculty of Law

Date Written: October 8, 2020

Abstract

The U.S. audit regulator, PCAOB, has extraterritorial oversight power over all accounting firms that audit U.S.-listed companies, including that of foreign accounting firms. This put it in conflict with foreign audit regulators due to sovereignty and conflict of law issues. Today China remains to prevent its accounting firms to be inspected by the PCAOB, although most other jurisdictions have resolved their differences with the U.S. regulator. This dispute between the U.S. and China had led to lawsuits, warnings, and potential bill to de-list all Chinese companies. This article examines the U.S. audit oversight regime and its inspection practices, the law of China that prevent foreign access to audit documents, as well as the court cases that arose out of the dispute. The reasons for the reluctance of the Chinese side to cooperate are found to be multi-folded, from legal restriction, administrative hurdle, regulatory standard differences, enforcement resources constraints, to a political preference for sovereign rights and national control. As another major listing destination for Chinese companies, Hong Kong has also encountered difficulties with access to Chinese audit documents but has taken a different approach to solving them. This article proposes various policy options to cope with the dispute over cross-border audit oversight, including sidestepping the legal issue over approval of state secrets by first asking the audit firm to prove the factual existence of state secrets, categorizing the Chinese companies into different groups with different treatments, exploring other forms of cooperative arrangements based on the Hong Kong experience or even using Hong Kong as a proxy for oversight.

Keywords: Cross-border audit oversight, audit working paper, cross-listing, Chinese Concept Stocks, securities regulatory cooperation, PCAOB

JEL Classification: G15, K22

Suggested Citation

Huang, (Robin) Hui, The US-China Audit Oversight Dispute: Causes, Solutions, and Implications for Hong Kong (October 8, 2020). (2021) 54(1) The International Lawyer 151-199 , The Chinese University of Hong Kong Faculty of Law Research Paper No. 2021-01, Available at SSRN: https://ssrn.com/abstract=3708068

(Robin) Hui Huang (Contact Author)

Chinese University of Hong Kong - Faculty of Law ( email )

Shatin, New Territories
Hong Kong
852-39431805 (Phone)
852-29942505 (Fax)

HOME PAGE: http://www.law.cuhk.edu.hk/app/people/prof-robin-huang/

华东政法大学(East China University of Political Sicence and Law) ( email )

1575 Wanhangdu Rd.
Changning, Shanghai 200042
China

University of New South Wales - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia
61-2-9385 9649 (Phone)
61-2-9385 1175 (Fax)

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