On August 26, the China Securities Regulatory Commission, the Ministry of Finance of the People's Republic of China and the Public Company Accounting Oversight Board (PCAOB) of the United States signed an audit supervision cooperation agreement, which will be launched in the near future.

"The signing of the Sino-US audit supervision Cooperation Agreement marks a key step forward for the two sides to resolve the audit supervision issues through strengthening cooperation, which is in line with the expectations and expectations of the market." The relevant person in charge of the China Securities Regulatory Commission said that in the next step, the two sides will cooperate with relevant accounting firms to carry out daily inspection and investigation activities in accordance with the cooperation agreement, and make an objective assessment of the cooperation effect. If the follow-up cooperation can meet the respective regulatory needs, it is expected to solve the audit supervision problems of China General stock, so as to avoid passive delisting from the United States.

"We look forward to actively promoting cooperation with the US regulatory authorities in a professional and pragmatic manner and working together to achieve positive results." The aforementioned responsible person stated.

At present, there are more than 200 Chinese companies listed in the U.S. capital markets, and more than 30 Chinese domestic accounting firms registered with the PCAOB to provide audit services for Chinese companies listed in the United States.

Main contents of the cooperation agreement

The cooperation agreement mainly makes specific arrangements for the two sides to cooperate with relevant accounting firms to carry out daily inspections and law enforcement investigations, and agrees on important matters such as the purpose, scope, form of cooperation, use of information, and protection of specific data.

The cooperation agreement includes the following key elements:

First, establish the principle of reciprocity. The terms of this agreement shall be equally binding on both parties. Both China and the United States may, in accordance with their legal duties, conduct inspections and investigations into relevant firms within the jurisdiction of the other party, and the requested party shall do its best to provide full assistance to the extent permitted by law.

Second, define the scope of cooperation. The scope of the cooperation agreement includes assisting the other party in carrying out inspections and investigations of the relevant firms. Among them, the scope of assistance provided by the Chinese side also involves some Hong Kong firms that provide audit services for the company and whose audit papers are stored in the mainland.

Third, define the mode of cooperation. The two sides will communicate and coordinate plans for inspection and investigation activities in advance. The US side shall obtain audit papers and other documents from the Chinese regulatory authorities and conduct interviews and inquiries with relevant personnel of accounting firms with the participation and assistance of the Chinese side.

The direct object of audit supervision is the accounting firm

It is worth noting that the direct object of audit supervision is accounting firms, rather than the listed companies they audit.

The supervision of accounting firms inevitably involves the audit of working papers. Taking daily inspection as an example, in addition to checking the internal control system of accounting firms, regulators also need to spot check the audit working papers of some listed companies to check the quality of the work of the firms.

The audit working paper is the "work record" of the audit plan, the audit procedure, the audit evidence obtained, and the audit conclusions drawn by the firm during the audit process.

The main function of the audit working paper is to record whether the auditor has dutifully verified the accuracy of the financial information such as the income and expenditure of the enterprise in accordance with the audit standards, so it generally does not include sensitive information such as state secrets, personal privacy or the underlying data of the enterprise.

"It should be noted that the direct object of audit supervision is accounting firms, not the listed companies they audit. From the international practice of cross-border audit supervision cooperation, the regulatory authorities of the listed places generally select some accounting firms for inspection every year, and check the representative or potential audit quality risk audit projects among the listed companies audited by the inspected firms for verification, so as to assess the audit quality of the firms." The person in charge said that the same is true for Sino-US audit supervision cooperation, and it is not necessary to inspect all audit projects of listed companies in the United States every year.

Improve rules to solve sensitive information processing problems

Under the framework of the cooperation agreement, can audit working papers containing sensitive information be protected as necessary?

In fact, in recent years, China's data security law, personal information protection Law and other information security related laws and regulations have been implemented, and the information security responsibilities of relevant market players have become more clear, and the operation has more rules to follow. Companies, whether listed or not, are obliged to strictly comply with domestic laws and regulations.

"Recently, the China Securities Regulatory Commission and other departments have improved the confidentiality and file management regulations related to overseas listings, and put forward clear requirements for regulating the information security management of audit working papers," The person in charge said that this further implements the main responsibility of information security of listed companies, and provides more detailed and enforceable guidelines for listed enterprises and accounting firms to keep and handle confidential sensitive information in accordance with regulations, which helps to do a good job in the preparation of manuscripts under the premise of meeting accounting and auditing requirements, and protect relevant information security according to law.