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Cynical PCAOB release

On December 30, 2016, The Public Company Accounting Oversight Board (PCAOB) issued Staff Questions and Answers (Q&A) about the audits of mainland China issuers by registered firms outside of mainland China. The Q&A is not an official PCAOB position, but is intended to guide PCAOB staff when dealing with the relevant issues.

The Q&A explains how a 2005 Ministry of Finance (MOF) Circular titled Interim Provisions on Auditing Operations Conducted by Accounting Firms Concerning the Overseas Listing of Domestic Chinese Companies (the “MOF Rule”) applies to audits of US listed Chinese companies by overseas accounting firms. The MOF Rule includes provisions related to the conduct of auditors based outside of Mainland China that perform audit work in Mainland China. The rule does not apply to the work done by the mainland affiliates of the Big Four (because they are not considered based outside of mainland China), but it does apply where the Hong Kong firm signs off on work done by the mainland. The Big Four are subject to the same restrictions on providing working papers to the PCAOB or SEC and that was the subject of the case between the SEC and the firms that was settled with fines and a promise to comply in the future.

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