The fourth meeting of the U.S.-China Strategic and Economic Dialogue took place in Beijing this week. The American delegation for the economic track consisted of 19 people, including Treasury Secretary Tim Geithner, Ambassador Gary Locke, Fed Chairman Ben Bernanke, and PCAOB Chairman James Doty.
Foreign journalists seem to have ignored the Dialogue, focusing instead on the sideshow of Chen Guangcheng. Xinhua reported that the talks yielded tangible results, although those results are hard to find in the joint communications. Mostly, the parties seem to have agreed to keep talking.
There are two matters related to accounting that are notable – one by its presence and one by its absence.
The joint fact sheet (which provides much more detail than the U.S. version) reports that China and the U.S. support the objective of a single set of high quality global accounting standards. That means the U.S. agrees to support IFRS, since China claims its accounting standards have already converged with IFRS. In February, the SEC Chief Accountant said an SEC decision on the use of IFRS by U.S. public companies was a few months away. Perhaps this is a hint on the decision.
Missing from either the joint or U.S. versions of the fact sheet is any reference to the PCAOB’s negotiations with China over access to inspect Chinese auditors of U.S. listed companies. Last year both countries promised to accelerate the negotiations. There was no PCAOB representative on the U.S. team last year. Perhaps Doty’s presence indicates sufficient progress has been made that a public commitment to negotiate further was not considered necessary. There is also no mention of China cooperating with the SEC on the many accounting frauds by U.S. listed Chinese companies, including the issue of obtaining documents from China as evidenced by Deloitte’s battle with the SEC over Longtop.
Floyd Norris of the New York Times weighed in on the issue on Thursday. The Wall Street Journal published an interesting editorial by Carson Block of Muddy Waters titled “China’s Auditing Train Wreck” where he calls for a resolution of the PCAOB inspection and SEC document problems, or, failing that, for the deregistration of accounting firms. Deregistration of auditing firms, including the China member firms of the Big Four, would provoke a nightmare that neither China or the U.S. should want to experience.