Gensler, however, argued that so-called audit work papers rarely contain sensitive information.
“That’s likely why 50 other jurisdictions have gotten comfortable with this over the years,” he said. “Work papers are things that confirm revenues and expenses.”
China’s government said this month that progress was being made in talks with U.S. regulators.
One potential compromise being discussed by the China Securities Regulatory Commission would allow U.S. reviewers from the Public Company Accounting Oversight Board to inspect audit papers for some companies as soon as this year, Bloomberg News reported earlier this month. However, under the plan the CSRC would still seek to retain some ability to withhold sensitive data.
Though he didn’t comment on any specific proposals, Gensler indicated that such an option was unworkable under the terms laid out in the 2020 law, called the Holding Foreign Companies Accountable Act.
American inspectors, Gensler said, must be able to go into a foreign accounting firm and choose whichever audits of U.S.-traded corporations that they want to see. In addition, he pointed out that the American law focuses on noncompliant countries rather than specific companies. So if one request is blocked, it means the requirement isn’t being satisfied. Of course, if China wanted to shield a business’s financial documents, it could simply move the listing to a non-U.S. exchange.
Since joining the SEC last year, Gensler has taken a hard line on the audit requirement and pushed for more protections for investors in Chinese stocks. He also suspended new Chinese initial public offerings until companies provide better disclosure about their potential pitfalls.
The PCAOB’s inspectors haven’t been able to review the audits of about 200 corporations based in China or Hong Kong, including Alibaba Group Holding Ltd. and Baidu.
One wild card in the negotiations is that both the U.S. House and Senate have passed separate provisions calling for the delisting process be sped up. If those measures become law, Chinese audit firms would have less than a year to comply.
For his part, Gensler noted that the U.S. and Chinese governments have been at loggerheads over the audit-inspection requirement ever since it was imposed in 2002.
“It’s been 20 years, so it’s a hard issue,” he said. “Sometimes when the clock is ticking, it focuses one’s mind.”
This article was provided by Bloomberg News.