1. Q: What is the significance of signing the China-US Audit and Supervision Cooperation Agreement?
It establishes a supervision cooperation mechanism for the two sides to carry out daily inspections and law enforcement cooperation on accounting firms within the scope of mutual supervision.
This agreement allows China to inspect US firms if they wanted to in the US mainland as well
2. Q: What are the main contents of the Sino-US audit supervision cooperation agreement?
First, establish the principle of reciprocity. The terms of the agreement are equally binding on both parties. Both China and the United States may, in accordance with their statutory duties, conduct inspections and investigations on relevant firms within the jurisdiction of the other party, and the requested party shall try its best to provide adequate assistance to the extent permitted by law.
The second is to clarify the scope of cooperation. The scope of the cooperation agreement includes assisting the other party to carry out inspections and investigations of relevant firms. Among them, the scope of assistance provided by the Chinese side also involves some Hong Kong firms that provide audit services for China concept stocks and whose audit manuscripts are stored in the mainland.
The third is to clarify the way of cooperation. The two sides will communicate and coordinate the inspection and investigation plan in advance. The U.S. side must obtain the audit papers and other documents through the Chinese regulatory authority, and conduct interviews and inquiries with the relevant personnel of the accounting firm with the participation and assistance of the Chinese side.
Chinese authorities are still involved in giving the US audit papers alongside their participation and assistance in any interviews and inquiries. Also this agreement is equally binding. China is allowed to conduct their own audits in the US in the same way that the US will conduct theirs in China
3. Q: What is the purpose of carrying out cross-border audit supervision cooperation?
In order to perform its audit and supervision responsibilities for the above firms, PCAOB needs to establish cooperative relations with Chinese regulatory authorities and implement cross-border regulatory cooperation. Similarly, if Chinese regulators need to implement audit supervision on US accounting firms within their own supervision, they must also do so through the supervision cooperation mechanism.
4. Q: What is the role of audit working papers in cross-border audit supervision cooperation?
It should be noted that the direct object of audit supervision is the accounting firm, not the listed company it audits.
The supervision of accounting firms will inevitably involve audit working papers… The main function of audit working papers is to record whether auditors have dutifully verified the accuracy of financial information such as corporate income and expenditure in accordance with auditing standards, and therefore generally do not include sensitive information such as state secrets, personal privacy, or underlying corporate data.
Interesting enough is that it says that the accounting firm is the main target of auditing and not the company itself that is listed will be audited. Obviously, this is due to the equally binding clause. The US will never allow direct Chinese inspections of internal US companies and vice versa.
5. Question: Under the framework of the cooperation agreement, if the audit working papers contain some sensitive information, can they get the necessary protection?
The Sino-US audit supervision cooperation agreement will carry out the inspection and investigation activities of the relevant accounting firms by both parties under the cooperation framework. The two parties will fully communicate and coordinate in advance. The audit working papers and other documents that the U.S. side must review will be assisted by the Chinese regulatory agency. supply. At the same time, the cooperation agreement clearly stipulates the processing and use of sensitive information that may be involved in audit supervision cooperation, and sets up special processing procedures for specific data such as personal information, which provides a feasible way for both parties to perform their statutory supervision duties while protecting the security of relevant information. path.
Chinese authorities are still involved in the auditing process including any sensitive data as per from Q2 that Chinese authorities will review the papers before handing them over. So the US can’t demand secrets or data without the involvement of Chinese authorities.
In all, this agreement doesn’t look bad at all due to the equally binding clause. This clause will limit the ability of the US since if they want to inspect anything in China then the same right is given to Chinese inspection to anything in the US. We all know the US will never allow China to inspect sensitive data of US companies and vice versa.
