A report issued last week by the US Public Company Accounting Oversight Board (PCAOB) indicated that the threat of forced delisting for non-compliance has been lifted for US-listed Chinese biotechs. The PCAOB, acting under the remit of the US Holding Foreign Companies Accountable Act (HFCAA), reported that it has successfully secured complete access to inspect and investigate Chinese firms “for the first time in history.”
Inspection Details and Findings
The PCAOB’s progress report followed the successful inspection of two auditors-KPMG Huazhen LLP in mainland China and PriceWaterhouseCoopers (PWC) in Hong Kong-covering eight different audit engagements. A large team of PCAOB inspectors visited China and Hong Kong from September this year and were given unprecedented access for a 9-week period to view complete audit work papers with no redactions and interview all personnel associated with such audits. The inspection uncovered “numerous potential deficiencies,” with final reports still being finalized.
Regulatory Context and Future Prospects
The HFCAA, introduced by the US in 2020, requires any foreign-based company listed on US exchanges to allow auditors registered with the PCAOB to carry out full inspections of finances within 3 years or face delisting. The US Securities and Exchange Commission (SEC) began issuing notices to comply to around 200 Chinese companies-including several pharma and biotech companies such as BeiGene, Zai Lab, HutchMed, and I-Mab-from March 2022. The US and Chinese governments reached a landmark agreement to allow PCAOB inspections in August. As long as the PCAOB continues to have access to China-based auditors, the threat of automatic delisting has been removed for now.-Fineline Info & Tech
