Gaming giant NetEase and technology company Alibaba have been selected as part of the first round of US audit inspections.
This first round of audits come as US regulators reached an agreement with China, allowing the country to the access audit papers of Chinese firms listed in New York.
According to a source close to the matter, The US Public Company Accounting Oversight Board (PCAOB) has requested access to materials from the last financial year for review.
The inspections are due to take place in Hong King next month, finally ending an impasse between China and the US regarding financial audits. In 2020, a newly imposed US law set a time frame for firms to make their paperwork available for audit, at the risk of being kicked from American stock exchanges should they fail to comply.
The conflict isn't over
However, the list of companies in the first round of audits is subject to change. Despite the agreement being seen as a breakthrough, conflict between China and the US remains. The PCAOB states that the list of firms to be audited is at their sole discretion, while Chinese regulators insist that any access to companies and relevant documents would be done with their participation.
There also remain logistical issues, such as uncertainty on how to physically transfer relevant working papers across the Chinese border to Hong Kong for review, with options such as mailing the documents on CD’s or unlocking the Chinese cloud for access in Hong King being considered.
China’s reluctance to share audit papers comes in part due to national security concerns. However, partners at the four Hong Kong firms responsible for the audits – Deloitte LLP, PricewaterhouseCoopers LLP, Ernst & Young LLP, and KPMG LLP – state that the risk of exposing national secrets to the US is minimal, as current practice dictates that anything with natural security implications should be removed from any documents sent for review.
Last week, we listed NetEase as the top mobile game maker of 2022.