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5 White Paper on the Business Environment in China
of Finance, and ongoing e orts are being made to achieve Caught in the middle are the auditing rms, which
greater equivalence between the CASs and United States and are all a liates of major U.S. accounting rms, like
European Union standard practices.14 KPMG and Deloitte. One of the rms, which is tied
to Ernst and Young, issued a statement […] saying
Nevertheless, some inconsistencies remain, and in an it wanted to comply with the rules and hoped the
environment in which mergers and acquisitions are becoming dispute is resolved soon.18
more strategically lucrative, foreign investors are generally
advised that Chinese nancial statements (especially for private e Wall Street Journal’s China Real Time blog o ered
companies) “usually do not provide as much information as further context:
[investors] might be used to receiving” and so it is therefore
“important that buyers perform their own nancial and tax Hours after its high-pro le attack on the Chinese
due diligence review before acquiring a Chinese target.”15 arms of ve major accounting rms Monday, the U.S.
Securities and Exchange Commission laid into Chinese
Illustrating the need for due diligence, there have been regulators for their alleged lack of cooperation.
several recent cases of Mainland IPOs on foreign exchanges
being delisted and in some cases investigated by exchange In court papers led late Monday, the SEC said
regulators for fraudulent accounting, in addition to seeing that since 2009 it had sent its Chinese counterpart,
auditor resignations.16 the China Securities Regulatory Commission, 21
separate requests for assistance in connection with 16
By 2012, those investigations had led to “50 China- di erent investigations and hadn’t received any of the
based companies [being] delisted from U.S. exchanges,” with requested audit papers or any meaningful assistance.
“ e SEC [ ling] fraud allegations against 40 individuals or Additionally, the agency said that long-running
companies.”17 negotiations with the CSRC to establish a framework
for information sharing had gone nowhere.19
Moreover, in December 2012 the U.S. Securities and
Exchange Commission led a lawsuit against ve China- Given the circumstances, it is likely that the biggest
incorporated accounting rms, which lawsuit U.S.-based casualties in this apparent proxy-war between U.S. and
National Public Radio summarized: Chinese regulators will the accounting rms themselves
and Chinese rms looking to “go global” and list on U.S.
JIM ZARROLI, BYLINE: e suit, which was led exchanges.
by the Securities and Exchange Commission, says
U.S. o cials want to investigate nine unnamed As of January 2014, this dispute is ongoing. On the 22nd
Chinese companies for unspeci ed reasons. O cials of that month, a “Securities and Exchange Commission
say that because these companies trade on U.S. administrative law judge to suspend the Big Four’s China-
stock exchanges, they have to turn over their audit based a liates from auditing U.S.-traded companies for
documents to American regulators. six months.” is decision, writes e Wall Street Journal,
moves China and the U.S. closer to a confrontation over
But China insists that doing so would violate its the underlying issue of “how much oversight U.S. regulators
own rules about corporate secrecy and has steadfastly should have over companies inside China [which are listed on
refused to do so. e dispute has dragged on for several U.S. exchanges].”20
years with no resolution, says James Feltman, senior
managing director of Mesirow Financial Services. Advertising is another relatively ‘young’ industry in China,
having “returned to the People’s Republic of China in 1979.”21
JAMES FELTMAN: It doesn’t appear as though this
is going to get resolved anytime soon. And ultimately, e Advertising Law of 1995 o cially “legitimated” the
if Chinese listed companies in the U.S. can’t meet the agency system that is the international norm,19 and beginning
requirements, then they’re not going to be able to January 1, 2006, wholly foreign-funded advertising companies
continue to be listed on U.S. exchanges. were permitted access to the market in line with China’s WTO
entry commitments made in 2001.22
ZARROLI: But the U.S. isn’t ready to lower the boom
yet and Feltman called yesterday’s suit a measured e interplay between state-owned media, a quickly-
response by the SEC—an attempt to ratchet up the changing media regulatory environment and overlap in
pressure on China. regulatory jurisdiction is often cited as a major source of
interestingness, as illustrated by changes to tax law in 2000 by
214
of Finance, and ongoing e orts are being made to achieve Caught in the middle are the auditing rms, which
greater equivalence between the CASs and United States and are all a liates of major U.S. accounting rms, like
European Union standard practices.14 KPMG and Deloitte. One of the rms, which is tied
to Ernst and Young, issued a statement […] saying
Nevertheless, some inconsistencies remain, and in an it wanted to comply with the rules and hoped the
environment in which mergers and acquisitions are becoming dispute is resolved soon.18
more strategically lucrative, foreign investors are generally
advised that Chinese nancial statements (especially for private e Wall Street Journal’s China Real Time blog o ered
companies) “usually do not provide as much information as further context:
[investors] might be used to receiving” and so it is therefore
“important that buyers perform their own nancial and tax Hours after its high-pro le attack on the Chinese
due diligence review before acquiring a Chinese target.”15 arms of ve major accounting rms Monday, the U.S.
Securities and Exchange Commission laid into Chinese
Illustrating the need for due diligence, there have been regulators for their alleged lack of cooperation.
several recent cases of Mainland IPOs on foreign exchanges
being delisted and in some cases investigated by exchange In court papers led late Monday, the SEC said
regulators for fraudulent accounting, in addition to seeing that since 2009 it had sent its Chinese counterpart,
auditor resignations.16 the China Securities Regulatory Commission, 21
separate requests for assistance in connection with 16
By 2012, those investigations had led to “50 China- di erent investigations and hadn’t received any of the
based companies [being] delisted from U.S. exchanges,” with requested audit papers or any meaningful assistance.
“ e SEC [ ling] fraud allegations against 40 individuals or Additionally, the agency said that long-running
companies.”17 negotiations with the CSRC to establish a framework
for information sharing had gone nowhere.19
Moreover, in December 2012 the U.S. Securities and
Exchange Commission led a lawsuit against ve China- Given the circumstances, it is likely that the biggest
incorporated accounting rms, which lawsuit U.S.-based casualties in this apparent proxy-war between U.S. and
National Public Radio summarized: Chinese regulators will the accounting rms themselves
and Chinese rms looking to “go global” and list on U.S.
JIM ZARROLI, BYLINE: e suit, which was led exchanges.
by the Securities and Exchange Commission, says
U.S. o cials want to investigate nine unnamed As of January 2014, this dispute is ongoing. On the 22nd
Chinese companies for unspeci ed reasons. O cials of that month, a “Securities and Exchange Commission
say that because these companies trade on U.S. administrative law judge to suspend the Big Four’s China-
stock exchanges, they have to turn over their audit based a liates from auditing U.S.-traded companies for
documents to American regulators. six months.” is decision, writes e Wall Street Journal,
moves China and the U.S. closer to a confrontation over
But China insists that doing so would violate its the underlying issue of “how much oversight U.S. regulators
own rules about corporate secrecy and has steadfastly should have over companies inside China [which are listed on
refused to do so. e dispute has dragged on for several U.S. exchanges].”20
years with no resolution, says James Feltman, senior
managing director of Mesirow Financial Services. Advertising is another relatively ‘young’ industry in China,
having “returned to the People’s Republic of China in 1979.”21
JAMES FELTMAN: It doesn’t appear as though this
is going to get resolved anytime soon. And ultimately, e Advertising Law of 1995 o cially “legitimated” the
if Chinese listed companies in the U.S. can’t meet the agency system that is the international norm,19 and beginning
requirements, then they’re not going to be able to January 1, 2006, wholly foreign-funded advertising companies
continue to be listed on U.S. exchanges. were permitted access to the market in line with China’s WTO
entry commitments made in 2001.22
ZARROLI: But the U.S. isn’t ready to lower the boom
yet and Feltman called yesterday’s suit a measured e interplay between state-owned media, a quickly-
response by the SEC—an attempt to ratchet up the changing media regulatory environment and overlap in
pressure on China. regulatory jurisdiction is often cited as a major source of
interestingness, as illustrated by changes to tax law in 2000 by
214
