China’s proposed rules applying to audit papers raise questions over role of Hong Kong, big-four accounting firms
- Tighter-than-expected rules about location of data cast doubt on Hong Kong serving as neutral ground for inspection of Chinese firms’ audit materials
- ‘Investors in China should accept that certain data may not be made available due to national security reasons’, an economist says
A set of proposed cybersecurity rules from China has cast doubt over whether Hong Kong can serve as neutral ground to settle a dispute between Beijing and Washington over auditing rules, as the measures lay out stricter-than-expected restrictions about where auditors may park and back up sensitive data.
The draft rules, jointly published on November 10 by the Ministry of Finance and the Cyberspace Administration of China (CAC), said accounting firms must keep their audit working papers and relevant data within the territory of the People’s Republic of China (PRC).
Audit working papers, also known as audit documentation according to US accounting watchdog the Public Company Accounting Oversight Board, detail how accounting firms plan and execute audits of clients’ financial statements.
The proposed rules translate to additional cost and burden for accounting firms who will have to up their game to comply, experts said, while calling into question the role for Hong Kong and the “big four” global accounting firms.
“Hong Kong and mainland China are subject to different regulations, which means that if the data are backed up in Hong Kong, they can still be obtained by foreign entities in the region, and this is considered a risk according to China’s cybersecurity law,” said Shen Meng, director at Beijing-based investment firm Chanson & Company.
