According to a Reuter’s report by Soyoung Ho that is currently behind Reuter’s paywall, PCAOB chairman James Doty said some discouraging things at the recent meeting of the PCAOB’s Standing Advisory Group about the prospects for an inspection agreement with China.
Doty is quoted to have said that the PCAOB’s effort to inspect auditors in China is “in a difficult and frustrating place”. Doty indicated that he was still hopeful that an agreement could be reached. However, according to the report he said: “It’s getting late to plan an inspection for 2015. That’s what’s discouraging about this. It’s not impossible, but it’s getting late to plan for the 2015 cycle.
According to the Reuters report, proposed agreements “are now in the hands of more senior Beijing officials, and it’s not clear what decision they’ll reach, or when. If PCAOB inspectors are allowed to review audit documents in the People’s Republic, it may not happen before 2016 at the earliest.”
In addition to the PCAOB inspection issue, the SEC decision against the Big Four firms has yet to be resolved. Filings in the appeal have been extended to the end of the year to allow time for settlement, and perhaps Chinese officials want to settle both issues simultaneously.
While these issues hang over the capital markets, they do not seem to be discouraging investors. The likelihood that a failure to resolve the issues will lead to a delisting of U.S. listed Chinese stocks seems remote, particularly after Alibaba did the world’s largest IPO this year. The Chinese probably recognize that U.S. regulators are unlikely to deploy the nuclear option of delisting, and that has probably empowered them to play hardball in negotiations.
I will update this post with a link to the Reuters article if it pops out from behind the paywall. Here is the story by Reuters.