WASHINGTON Feb 5 The top U.S. audit watchdog
said on Wednesday he believes the United States and China are
close to striking a deal that would allow Washington to inspect
the audit work of accounting firms in China.
"I am also optimistic that we will be able, during 2014, to
sign a long-sought agreement to inspect the audit work of
PCAOB-registered firms based in China," Jim Doty, the chairman
of the Public Company Accounting Oversight Board, said in
prepared remarks to the Securities and Exchange Commission.
Doty is testifying before U.S. securities regulators to
discuss his board's budget and policy initiatives for 2014.
The PCAOB and the SEC have both been struggling for years to
gain access to work papers at audit firms in China, including
units of the "Big Four" firms, amid a rash of accounting
scandals at U.S.-listed China-based companies.
They have argued they need the documents, both to help
investigate possible fraud at U.S.-listed companies, and also to
inspect the quality of the auditors' work.
But PricewaterhouseCoopers, KPMG,
Deloitte, Ernst & Young, and other
accounting firms have refused to share any paperwork, citing
Chinese secrecy laws.
The SEC eventually filed an enforcement action against the
Chinese units of the Big Four in late 2012, saying they were
violating U.S. laws by failing to hand over the audit
The PCAOB has continued talks with the Chinese and in May
2013 were able to strike a deal to get access to audit work in
connection with investigations.
That deal, however, did not give the PCAOB any ability to
conduct routine inspections of the audit firms - a key
responsibility of the board to make ensure the quality of the
Last month, the SEC prevailed in its case against the Big
Four, after an SEC administrative law judge sided with the
agency and ruled the audit firms were intentionally withholding
The judge suspended the firms from practicing in the United
States for six months, but the suspensions will not go into
effect until the appeals process is exhausted.
Many observers had said they feared the ruling by the judge
could hurt the progress the PCAOB had made so far in its talks
with the Chinese.
Doty did not discuss the ruling in his prepared remarks or
say whether it might hinder his diplomatic efforts.