SEC warns auditors of risks in taking on Chinese clients

U.S.-based audit firms seeking new public company clients in China should ensure they have full access to previous audits and work papers before taking the job or risk potential enforcement, the acting chief accountant at the Securities and Exchange Commission (SEC) warned.

Paul Munter said in a statement Tuesday that Chinese companies should not believe swapping out a China- or Hong Kong-based auditor for a U.S.-based firm will result in quick compliance with the Holding Foreign Companies Accountable Act (HFCAA). The U.S. firms in that scenario must similarly understand their responsibilities under standards established by the Public Company Accounting Oversight Board (PCAOB).

The HFCAA, signed into law in 2020, would delist any public company that does not meet U.S. audit inspection standards after three consecutive years of noncompliance. The SEC has identified approximately 200 Chinese companies listed on U.S. stock exchanges that face delisting.