U.S. Markets

U.S. securities regulator warns over Chinese audit amid coronavirus outbreak

WASHINGTON (Reuters) - The U.S. securities regulator on Wednesday said it was pushing the Big Four accountancy firms to ramp up internal controls on audits of U.S.-listed Chinese companies, especially in light of growing business risks posed by the coronavirus.

The U.S. Securities and Exchange Commission has been locked in a decade-long struggle with the Chinese government to inspect audits of U.S.-listed Chinese companies. The regulator’s accounting oversight arm, the Public Company Accounting Oversight Board, is still unable to access those critical records, it said.

That has become a greater worry as the coronavirus outbreak poses a threat to New York-listed Chinese companies as well as to Chinese suppliers of other U.S.-listed firms.

The SEC said on Wednesday it had been pressing the largest accounting firms, which audit roughly 140 U.S.-listed Chinese companies, to ensure they are scrutinizing how firms are managing and disclosing the risks.

The regulator said it had also asked the firms to keep an eye on the impact of the virus on audit quality, since the coronavirus had caused personnel disruptions in mainland China and Hong Kong.

“How issuers plan and respond to the events as they unfold can be material to an investment decision, and we urge issuers to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable,” the SEC chair Jay Clayton said in a joint statement with the chairman of the accounting board.

The PCAOB, which was set up by the 2002 Sarbanes-Oxley Act as a private-sector nonprofit corporation overseen by the SEC, is tasked with policing the accounting firms that sign off on the books of the nation’s listed companies.

The audit-quality issue has been festering since 2011, when scores of Chinese firms trading on U.S. exchanges were accused of accounting irregularities.

On Wednesday, Clayton said the SEC would extend some flexibility to companies whose disclosure filings cannot be completed as scheduled, with appropriate auditor review, due to business disruption by the coronavirus.

“The staff will determine whether to provide additional guidance and relief as appropriate for affected parties,” Clayton said. “Relief may be made available on a case-by-case or broader basis as circumstances merit.”

Reuters reported earlier this month that auditors for listed Chinese companies will likely struggle to complete their work by stock exchange deadlines because of travel bans and other restrictions designed to limit the spread of the new coronavirus.

(This story has been refiled to fix garble in story tag, no change to headline or text).

Reporting by Katanga Johnson; Editing by Michelle Price and Tom Brown