US-China Accounting Dispute Resolved?

May 25, 2013

I’m not so sure about that, but here’s an update:

The U.S. Public Company Accounting Oversight Board announced a deal Friday with Chinese regulators to access documents held by Chinese auditors, defusing but not fully resolving serious disputes with China.

The Memorandum of Understanding with the China Securities Regulatory Commission and China’s Ministry of Finance will let U.S. and Chinese regulators request and get help from each other in obtaining documents for their investigations.

Hmm. If you recall, the U.S. government was saying that they need access to docs in China to fulfill oversight responsibilities, while the Chinese were saying that State secret considerations prohibited granting of such access. The stalemate has been going on for many moons, with U.S.-listed Chinese companies in particular getting quite nervous about the implications.

Does this fix the problem? Looks like a temporary, intermediate solution to me. Sounds like China is saying “OK, we agree in principle that you should see this stuff, but we’re not going to let you just walk in and grab whatever you want. Ask us politely on a case-by-case basis, and we’ll cooperate and respond to your requests in a reasonable manner.”

Yeah, we’ll see about that. Could work very well, if the process was completely resistant to extraneous political considerations/pressures. You think that’s likely? Me neither.

Is this a “win” for either side? I hesitate to say, since I haven’t read the text of the MOU and am not an expert on this. I’ll defer to Paul Gillis for a definitive conclusion. That being said, the big downside here was for Chinese companies, which could have been de-listed from U.S. exchanges if this wasn’t resolved.

To the extent that the de-listing option has been taken off the table, at least temporarily, and the argument shifted to the extent to which Chinese authorities are responding to requests (as opposed to whether they will allow any access at all), that sounds like a good deal for Chinese companies. If it turns out that this cooperation is fraught with delays and complications, then I’d suggest that China came out on top on this. But only in the short term.

Stay tuned.