* PCAOB's Ferguson optimistic on talks over inspections
* PCAOB, China met last week, discussed draft deal
* Optimism comes one day after SEC enforcement crackdown
* SEC seeking audit papers from major audit firms
By Sarah N. Lynch
WASHINGTON, Dec 4 The U.S. audit watchdog is
optimistic about its negotiations with Chinese regulators over
potential joint inspections of Chinese audit firms, even as the
U.S. Securities and Exchange Commission ratchets up a related
standoff over access to audit documents.
Lewis Ferguson, a member of the Public Company Accounting
Oversight Board and one of the key negotiators with the Chinese,
said the PCAOB last week gave its Chinese counterparts a draft
proposal that could open the door for joint inspections.
He added that he hopes the PCAOB can take the next step of
observing the Chinese during an inspection.
"We presented them with a draft memorandum of understanding
... and we talked about some approaches that I am hopeful will
lead to a break-through, at least on the inspections," he told
Reuters on the sidelines of an accounting industry conference.
"The meeting was very good and we talked about possible
further meetings ... I'm reasonably optimistic we'll be able to
come up with something," he added at the American Institute of
CPAs event in Washington, D.C.
Ferguson's tone on Tuesday was starkly different from the
one taken by the SEC on Monday.
The SEC began legal proceedings against the Chinese
affiliates of Deloitte, KPMG,
PricewaterhouseCoopers, BDO and Ernst & Young
after those firms failed to supply documents relating to audits
of U.S.-listed Chinese companies suspected of possible
The SEC took the enforcement action after talks apparently
broke down between the SEC and the Chinese government over the
sharing of audit work papers.
The firms contend that Chinese state secrecy laws prevent
them from turning over the information, and say the Chinese and
U.S. need to come up with the deal before they can comply with
the SEC's request.
The legal move raises tensions in that showdown, which
experts say could kill off U.S. listings for Chinese firms if
The United States wants greater oversight after a rash of
accounting scandals at U.S.-listed companies based in China have
damaged investor confidence.
PCAOB officials at the conference on Tuesday said their
talks should be viewed as separate and independent from the
SEC's enforcement cases.
"We're continuing to proceed the way we have been. The SEC
has its cases that it brought, but we are continuing to proceed
with our negotiations and our dealings," said PCAOB board member
Jeanette Franzel, who was not involved in last week's talks but
is expected to be briefed later this week.
"The SEC's actions are separate from ours," she added.
Howard Scheck, chief accountant for the SEC's enforcement
division, said at the conference that the SEC "is protecting the
"We want to be able to get access to the work papers in
order to look at the quality of the audits, make sure we can
enforce the securities laws and make sure we can investigate
these issuers," he said.
The big question that remains is whether actions by the SEC
or the PCAOB could effectively prevent the firms from conducting
audits of U.S.-listed Chinese companies.
In the PCAOB's case, the watchdog could consider revoking
the registration of the firms - a drastic option it has yet to
take because of its potential wide-reaching implications.
The SEC's case, meanwhile, could lead an administrative law
judge at the agency to bar the firms from practicing before the
commission if he or she rules in the SEC's favor.
PCAOB officials on Tuesday declined to discuss the
possibility of revoking registrations.