Page 308 - 2017 White Paper
P. 308
7 White Paper on the Business Environment in China
Illustrating the need for due diligence, there have Hours after its high-profile attack on the Chinese arms
been several recent cases of Mainland IPOs on foreign of five major accounting firms Monday, the U.S. Securities
exchanges being delisted and in some cases investigated and Exchange Commission laid into Chinese regulators
by exchange regulators for fraudulent accounting, in for their alleged lack of cooperation.
addition to seeing auditor resignations (Armstrong 2011).
In court papers filed late Monday, the SEC said that
By 2012, those investigations had led to “50 China- since 2009 it had sent its Chinese counterpart, the
based companies [being] delisted from U.S. exchanges”, China Securities Regulatory Commission, 21 separate
with “the SEC [filing] fraud allegations against 40 requests for assistance in connection with 16 different
individuals or companies” (Scannell and Bond 2012). investigations and hadn’t received any of the requested
audit papers or any meaningful assistance. Additionally,
Moreover, in December 2012 the U.S. Securities and the agency said that long-running negotiations with the
Exchange Commission filed a lawsuit against five China- CSRC to establish a framework for information sharing
incorporated accounting firms, which lawsuit U.S.-based had gone nowhere (China Realtime Report 2012).
National Public Radio summarized:
Given the circumstances, it is likely that the biggest
JIM ZARROLI, BYLINE: The suit, which was filed by the casualties in this apparent proxy-war between U.S. and
Securities and Exchange Commission, says U.S. officials Chinese regulators will the accounting firms themselves
want to investigate nine unnamed Chinese companies and Chinese firms looking to “go global” and list on U.S.
for unspecified reasons. Officials say that because these exchanges.
companies trade on U.S. stock exchanges, they have to
turn over their audit documents to American regulators. As of January 2014, this dispute is ongoing. On
the 22nd of that month, a “Securities and Exchange
But China insists that doing so would violate its own Commission administrative law judge to suspend the Big
rules about corporate secrecy and has steadfastly refused Four’s China-based affiliates from auditing U.S.-traded
to do so. The dispute has dragged on for several years companies for six months” . This decision, writes The
with no resolution, says James Feltman, senior managing Wall Street Journal, moves China and the U.S. closer to a
director of Mesirow Financial Services. confrontation over the underlying issue of “how much
oversight U.S. regulators should have over companies
JAMES FELTMAN: It doesn’t appear as though this is inside China [which are listed on U.S. exchanges]”
going to get resolved anytime soon. And ultimately, (Rapoport 2014).
if Chinese listed companies in the U.S. can’t meet the
requirements, then they’re not going to be able to The Measures for the Administration of Agency
continue to be listed on U.S. exchanges. Bookkeeping issued in February 2016 by the Ministry of
Finance states that any entity that has not established an
ZARROLI: But the U.S. isn’t ready to lower the boom yet internal system or assigned the task of bookkeeping to
and Feltman called yesterday’s suit a measured response accounting personnel is required to entrust accounting
by the SEC — an attempt to ratchet up the pressure on business to an external bookkeeping agency. For
China. companies specializing in accounting services,
new provisions enable them to engage in agency
Caught in the middle are the auditing firms, which bookkeeping, which allows them to handle bookkeeping
are all affiliates of major U.S. accounting firms, like KPMG services entrusted by a client. For US-based small and
and Deloitte. One of the firms, which is tied to Ernst medium companies with representative offices in China,
and Young, issued a statement […] saying it wanted to it’s important to think through internal bookkeeping
comply with the rules and hoped the dispute is resolved structures and plans. Severe legal implications and
soon (Zarroli 2012). financial consequences lie ahead for companies
processing payroll and bookkeeping without relevant
The Wall Street Journal’s China Real Time blog offered qualifications.
further context:
The new provisions for engaging in agency
308 bookkeeping services, effective May 1, 2016, reinforce
Illustrating the need for due diligence, there have Hours after its high-profile attack on the Chinese arms
been several recent cases of Mainland IPOs on foreign of five major accounting firms Monday, the U.S. Securities
exchanges being delisted and in some cases investigated and Exchange Commission laid into Chinese regulators
by exchange regulators for fraudulent accounting, in for their alleged lack of cooperation.
addition to seeing auditor resignations (Armstrong 2011).
In court papers filed late Monday, the SEC said that
By 2012, those investigations had led to “50 China- since 2009 it had sent its Chinese counterpart, the
based companies [being] delisted from U.S. exchanges”, China Securities Regulatory Commission, 21 separate
with “the SEC [filing] fraud allegations against 40 requests for assistance in connection with 16 different
individuals or companies” (Scannell and Bond 2012). investigations and hadn’t received any of the requested
audit papers or any meaningful assistance. Additionally,
Moreover, in December 2012 the U.S. Securities and the agency said that long-running negotiations with the
Exchange Commission filed a lawsuit against five China- CSRC to establish a framework for information sharing
incorporated accounting firms, which lawsuit U.S.-based had gone nowhere (China Realtime Report 2012).
National Public Radio summarized:
Given the circumstances, it is likely that the biggest
JIM ZARROLI, BYLINE: The suit, which was filed by the casualties in this apparent proxy-war between U.S. and
Securities and Exchange Commission, says U.S. officials Chinese regulators will the accounting firms themselves
want to investigate nine unnamed Chinese companies and Chinese firms looking to “go global” and list on U.S.
for unspecified reasons. Officials say that because these exchanges.
companies trade on U.S. stock exchanges, they have to
turn over their audit documents to American regulators. As of January 2014, this dispute is ongoing. On
the 22nd of that month, a “Securities and Exchange
But China insists that doing so would violate its own Commission administrative law judge to suspend the Big
rules about corporate secrecy and has steadfastly refused Four’s China-based affiliates from auditing U.S.-traded
to do so. The dispute has dragged on for several years companies for six months” . This decision, writes The
with no resolution, says James Feltman, senior managing Wall Street Journal, moves China and the U.S. closer to a
director of Mesirow Financial Services. confrontation over the underlying issue of “how much
oversight U.S. regulators should have over companies
JAMES FELTMAN: It doesn’t appear as though this is inside China [which are listed on U.S. exchanges]”
going to get resolved anytime soon. And ultimately, (Rapoport 2014).
if Chinese listed companies in the U.S. can’t meet the
requirements, then they’re not going to be able to The Measures for the Administration of Agency
continue to be listed on U.S. exchanges. Bookkeeping issued in February 2016 by the Ministry of
Finance states that any entity that has not established an
ZARROLI: But the U.S. isn’t ready to lower the boom yet internal system or assigned the task of bookkeeping to
and Feltman called yesterday’s suit a measured response accounting personnel is required to entrust accounting
by the SEC — an attempt to ratchet up the pressure on business to an external bookkeeping agency. For
China. companies specializing in accounting services,
new provisions enable them to engage in agency
Caught in the middle are the auditing firms, which bookkeeping, which allows them to handle bookkeeping
are all affiliates of major U.S. accounting firms, like KPMG services entrusted by a client. For US-based small and
and Deloitte. One of the firms, which is tied to Ernst medium companies with representative offices in China,
and Young, issued a statement […] saying it wanted to it’s important to think through internal bookkeeping
comply with the rules and hoped the dispute is resolved structures and plans. Severe legal implications and
soon (Zarroli 2012). financial consequences lie ahead for companies
processing payroll and bookkeeping without relevant
The Wall Street Journal’s China Real Time blog offered qualifications.
further context:
The new provisions for engaging in agency
308 bookkeeping services, effective May 1, 2016, reinforce
