President’s Working Group Attempts to Increase Transparency in Chinese Investments

After a long-running dispute with the Chinese government over whether the Public Company Accounting Oversight Board (PCAOB) can inspect the Chinese accounting firms that audit companies with stock trading in United States public markets, the President’s Working Group on Financial Markets (PWG) recently announced that Chinese companies will either have to get a transparent auditor or be delisted from United States markets. The PWG’s recommendations – which the administration has indicated the Securities and Exchange Commission will adopt, making them requirements – are intended to ensure that Chinese accounting firms are meeting audit standards equivalent to those in the United States under the Sarbanes-Oxley Act of 2002. These standards are intended to drive transparency in financial disclosures and to expose risks in investing in Chinese companies (as well as in companies from other countries with similar limitations on transparency).