The threat of Chinese stocks being pushed off the US stock exchanges is gaining ground, with the The Securities and Exchange Commission begins to implement a tough law passed at the end of the Trump administration.
On a wednesday statement, the SEC said it is taking initial steps to force accounting firms to allow US regulators to review financial audits of foreign firms. The penalty for non-compliance, as stipulated by law passed by Congress in December, is expulsion from the New York Stock Exchange or Nasdaq for any business that does not allow its audit to be inspected for three years.
China has long refused to allow The United States Public Companies Accounting Oversight Board examines audits of companies whose shares are traded in the United States, citing national security concerns. US lawmakers counter that such endurance It runs the risk of exposing investors to fraud, while complaining that it makes little sense for Chinese companies to have been allowed to raise money in the US without complying with US regulations.
The requirement that all public companies submit to PCAOB audit inspections was included in the Sarbanes-Oxley Act of 2002 in the wake of the Enron Corp accounting scandal. Alibaba Group Holding Ltd. and Baidu Inc. is among the Chinese companies listed in the US whose audit firms are failing to comply with the lawsuit.
While the SEC was expected to begin implementing the new law, Wednesday’s announcement indicates that Biden-era financial regulators will continue the tough stance of their predecessors on China. The current tension over audits comes as the world’s two largest economies continue to debate issues ranging from security to trade.
In addition to requiring companies to allow US inspectors to review their financial audits, the law requires companies to disclose whether they are under government control. The SEC’s announcement starts that process by seeking public comment on the kinds of disclosures and documentation that companies will have to share.