New law on sharing working papers | China Accounting Blog | Paul Gillis

New law on sharing working papers

The Chinese Institute of CPAs issued a public consultation paper on April 1 to solicit public comment on proposed changes to the CPA law. One of the proposed changes will specifically prohibit the sharing of audit working papers with persons outside of China.  

That has, of course, already been China’s position. Previously this rule was in the form of Pronouncement (2009) 29 issued jointly by the China Securities Regulatory Commission, the State Secrecy Bureau and the State Archive Bureau. Putting it into the CPA law buttresses China’s arguments with the PCAOB and SEC.

The proposed law applies to Chinese CPA firms. I expect that Chinese regulators will take the position that it also applies to foreign CPA firms operating in China under Temporary Audit Practice Certificates. It will bring into question the practices of the U.S. CPA firms that come to China to audit reverse merger companies. These firms likely cannot show their working papers to the PCAOB without violating Chinese law. Deloitte has argued that if they provided their working papers to the SEC their partners could face life in a Chinese prison. Are U.S. CPAs doing audits of Chinese companies willing to take that risk? 

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