Explainer | What are the US audit regulator’s inspectors doing in Hong Kong?

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Inspectors from the Public Company Accounting Oversight Board (PCAOB) spent last week at the Central offices of PwC and KPMG examining audit materials

A typical audit working paper will clearly show the name of the preparer, the date of preparation and the objective of the test, and the number of samples collected, auditor association chair says

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Enoch Yiu

Published: 7:30am, 27 Sep 2022

Teams of US audit inspectors have already spent their first week at the Central offices of accounting firms PwC and KPMG reviewing hundreds of audit working papers pertaining to US-listed, mainland-based companies.

The fates of more than 160 Chinese companies that face potential delisting from US exchanges are on the line in this unprecedented inspection. However, the review is focused not on the companies themselves, but rather on the work of their auditors.

The inspectors need to go through copious documents and interview the accountants to ensure the accounting firms have proper quality-control systems in place and to check their work on selected clients’ financial statements or listing prospectuses.

Who are the inspectors?

The inspectors work for the Public Company Accounting Oversight Board (PCAOB), the audit regulator of the US. The PCAOB was set up in 2002 under the Sarbanes-Oxley Act, the sweeping legislation that regulated accounting practices in the wake of scandals including the collapses of Enron and WorldCom.

A view of the China Securities Regulatory Commission (CSRC) office building located at Beijing’s Financial Street in Beijing in December 2019. Photo: SCMP / Simon Song

The PCAOB sets audit standards and sends inspectors to review accounting firms on a regular basis.