Targetting Chinese auditing firms, the United States Securities and Exchange Commission (SEC) approved a rule on Friday aimed at implementing a law banning foreign companies from US exchanges if their auditors haven't been inspected by American regulators, a media report said.
The new rule puts a framework in place to investigate auditing firms in jurisdictions such as China and Hong Kong. Public Company Accounting Oversight Board (PCAOB), the agency tasked with overseeing the US audit sector, adopted the framework in September, reported The Wall Street Journal.
Gary Gensler, SEC Chair, called it an important step to protect US investors. "I believe it is critical that the Commission and the PCAOB work together to ensure that the auditors of foreign companies accessing US capital markets play by the same rules," Gensler added.
For years, the Chinese government has resisted inspection of its companies audits. The PCAOB inspects non-US audit firms in around 40 other jurisdictions.
But it can not review audit documents in China without approval from Chinese authorities.
Accounting scandals at Luckin Coffee Inc and other Chinese companies have drawn attention to the gap in audit inspections.
If the Chinese companies do not allow inspections of their auditors, nearly 270 Chinese companies could be prohibited by the SEC from trading on US exchanges by 2024, Gensler stated in an oped in The Wall Street Journal.
( With inputs from ANI )
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