Accounting war: China’s financial regulator plans new approach to break deadlock with the US over auditing work

China’s financial regulator has taken a step towards ending the long-standing stalemate with the United States over corporate audits, making an overture to relieve some of the tensions that have routed New York-listed Chinese stocks in the past year.

The China Securities Regulatory Commission (CSRC) is considering a new approach that grants the US Public Company Accounting Oversight Board (PCAOB) access to the audit papers of China-based companies after they are cleared by the Chinese finance ministry for state secrets or sensitive data such as personal identity numbers, said two sources familiar with the plan.

The plan relegates the CSRC to the back seat in the auditing dispute between the US and China, from the role it has held since 2016 as the collector and gatekeeper of China’s audit working papers. It also takes the PCAOB a step closer towards its mission of ensuring that US-listed companies submit “independent” audit reports, the sources said.

“If Beijing decides to adopt such an approach, it will be a real breakthrough,” said Edmund Wong Chun-sek, a practising director of Patrick Wong CPA, who also represents Hong Kong’s accountancy constituency in the city’s legislature. “It would make the lives of auditors much easier when the two sides can agree on how to let US regulators do the audit reviews, while listed companies can also avoid being delisted.”

The CSRC had briefed several of the largest New York-listed Chinese companies since early March, urging them to curate their audit working papers to prepare for vetting by the finance ministry, where global audit and data privacy principles will be applied, the sources said.