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Chinese firms switch to US, Singapore auditors to avoid "delisting"

“More than a dozen US-listed Chinese companies have switched from auditors in their home country to ones in the US and Singapore since 2022, reducing the risk they could be thrown off American exchanges,” Nikkei Asia reported last week. The transitions come as the US begins ramping up enforcement of the 2020 Holding Foreign Companies Accountable Act (HFCAA), Nikkei said.

Last year, the Public Company Accounting Oversight Board (PCAOB), a nonprofit corporation established by Congress to oversee financial practices, said it found “unacceptable” irregularities at KPMG Huazhen and PwC Hong Kong, two foreign auditing firms operating in China.

Under the HFCAA, companies can be delisted from US stock exchanges if their accounting audits are not up to US standards.

Nikkei Asia:

The US Securities and Exchange Commission has identified 174 US-listed Chinese companies with auditors that required inspection. Of these, 24 have changed auditors since 2022, according to a Nikkei analysis of corporate filings, with 15 switching from companies in China or Hong Kong to ones in the US or Singapore.

After the churn, 16 of the 24 were being audited by companies in the US or Singapore, compared with two in the Americas before. The number being audited in China or Hong Kong fell from 22 to eight.

Analysts say the shift reflects concern over inspection risks and spells trouble for China-based foreign auditors who have US-listed local clients.

Nikkei Asia:

Nana Li, head of Asia-Pacific sustainability and stewardship at Impax Asset Management, said, “It will now be very difficult for foreign accounting companies . . . to keep many of their clients in China despite their long-term onshore operations in this market.”

For the rest of Nikkei’s update, Chinese companies switch auditors to avoid US delisting risk, click here. For PCAOB’s inspection reports, PCAOB Releases 2022 Inspection Reports for Mainland China, Hong Kong Audit Firms, click here.

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