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U.S. regulators see deal with Beijing on audits as 'premature,' will continue to engage

FILE PHOTO: Chinese and U.S. flags flutter near The Bund in Shanghai

By Katanga Johnson

WASHINGTON (Reuters) - The U.S. public company accounting regulator said on Thursday that it continued to engage with Chinese regulators about getting access to their auditors' records, but it remained unclear if the Chinese government would grant the access required by a new U.S. listing law.

The Public Company Accounting Oversight Board (PCAOB) said recent media speculation about an imminent deal that would stop hundreds of Chinese companies from being kicked off American stock exchanges was “premature.”

The regulator added that any agreement would only be a “first step” and that the PCAOB would then investigate to ensure that the deal is being followed.

"If an agreement is reached, we will then proceed with our inspection and investigation activities to determine if the agreement operates as intended...[but] an agreement without successful execution will not satisfy U.S. law," the audit watchdog said.

Chinese regulators have asked some of the country’s U.S.-listed firms, including Alibaba, Baidu and JD.com, to prepare for more audit disclosures as Beijing steps up efforts to ensure domestic companies remain listed in New York, Reuters reported n Tuesday

The Financial Times and Bloomberg News also reported this month that China’s securities watchdog is weighing a proposal that would allow U.S. regulators to inspect auditors’ working papers for some companies as soon as this year.

China's regulators have also been considering a proposal to allow their U.S. counterparts to inspect audit working papers of some Chinese firms that do not gather sensitive data.

Chinese companies that list on U.S. stock exchanges must disclose whether they are owned or controlled by a government entity, and provide evidence of their auditing inspections under new SEC rules adopted last year aimed at advancing a process that could lead to more than 200 companies being kicked off U.S. exchanges and could make some Chinese companies less attractive to investors.

U.S. lawmakers mandated in December 2020 that the watchdog take steps to ensure foreign companies listed in the United States, in particular Chinese companies, comply with U.S. auditing standards after decades of China's reluctance to let overseas regulators inspect local accounting firms due to national security concerns.

(Reporting by Katanga Johnson in Washington; Editing by Michelle Price and Andrea Ricci)