String of Chinese companies could leave US

Auditors feel strain of Sino-US stand off.

China faces a conundrum - either back down to US demands to inspect Chinese audit firms or risk further damaging the credibility of its companies and auditors abroad.

The long-standing feud between US and Chinese audit authorities, which has been simmering for the past few years, is coming to a head.

Last summer, nearly 30 audit firms were forced to resign from auditing Chinese companies listed in the US due to dodgy accounting and the exodus has continued since.

A lack of confidence in Chinese companies is diminishing the value of their stocks and leaving investors wary of pouring capital into unreliable accounts.

The US hopes to reach an agreement with China that would allow it to inspect Chinese audit papers of US listed companies.

So far, China has resisted US overtures, preventing Chinese firms from handing over audit papers. The world’s second largest economy does not like foreign powers meddling in its affairs and attempts by US authorities to place legal pressure on firms has hardened the resistance.

US law requires all firms that audit listed companies to undergo regular audit inspections by the US audit watchdog, Public Company Accounting and Oversight Board (PCAOB). Although the US has agreements with most jurisdictions that allow joint inspection, China is not the only exception. France, Denmark and Belgium also deny access but their companies are not embroiled in Securities and Exchange Commission (SEC) investigations.

To date, most of the attention had focused on one high profile case. Despite taking out legal action, the SEC has failed to retrieve audit papers from Deloitte’s Shanghai office in an investigation of software company Longtop Financial Technologies. Former Deloitte client Longtop falsified financial records and has come under the scope of US investigators.

It is understood US authorities have approached other Chinese firms for audit paperwork, including PwC.

The regulation tug-of-war places global accounting firms with Chinese offices in a tight spot.

Chinese law prevents them from directly dealing with other jurisdiction and all requests for audit papers must go through China’s Ministry of Finance, which so far isn’t playing ball.

At present, Mainland Chinese affiliates of global firms have 130 clients listed on US stock exchanges with Deloitte (48 clients), PwC and KPMG (28 clients each) top of the pile.

This number is already under threat.

Global firms are sensitive to the spread of reputational damage and would quickly drop a client (Chinese or otherwise) if they suspected it lacked credibility.

Firms may also start leaving Chinese clients if US government pressure begins affecting their US businesses.

What is clear is US authorities are losing patience with the impasse, although negotiations are ongoing.

If a solution isn’t found soon, Chinese firms could be banned from auditing US-listed companies. This could lead to a string of companies leaving US capital markets and heading back to Shanghai, or elsewhere.

A better outcome would be that US and Chinese authorities end the posturing and thrash out a mutually beneficial solution.

But don’t hold your breath.

Chinese companies face conundrum. Photograph: Getty Images.

Arvind Hickman is the editor of the International Accounting Bulletin.

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For the first time in my life I have a sworn enemy – and I don’t even know her name

The cyclist, though, was enraged. “THAT’S CLEVER, ISN’T IT?” she yelled. “WALKING IN THE ROAD!”

Last month, I made an enemy. I do not say this lightly, and I certainly don’t say it with pride, as a more aggressive male might. Throughout my life I have avoided confrontation with a scrupulousness that an unkind observer would call out-and-out cowardice. A waiter could bring the wrong order, cold and crawling with maggots, and in response to “How is everything?” I’d still manage a grin and a “lovely, thanks”.

On the Underground, I’m so wary of being a bad citizen that I often give up my seat to people who aren’t pregnant, aren’t significantly older than me, and in some cases are far better equipped to stand than I am. If there’s one thing I am not, it’s any sort of provocateur. And yet now this: a feud.

And I don’t even know my enemy’s name.

She was on a bike when I accidentally entered her life. I was pushing a buggy and I wandered – rashly, in her view – into her path. There’s little doubt that I was to blame: walking on the road while in charge of a minor is not something encouraged by the Highway Code. In my defence, it was a quiet, suburban street; the cyclist was the only vehicle of any kind; and I was half a street’s length away from physically colliding with her. It was the misjudgment of a sleep-deprived parent rather than an act of malice.

The cyclist, though, was enraged. “THAT’S CLEVER, ISN’T IT?” she yelled. “WALKING IN THE ROAD!”

I was stung by what someone on The Apprentice might refer to as her negative feedback, and walked on with a redoubled sense of the parental inadequacy that is my default state even at the best of times.

A sad little incident, but a one-off, you would think. Only a week later, though, I was walking in a different part of town, this time without the toddler and engrossed in my phone. Again, I accept my culpability in crossing the road without paying due attention; again, I have to point out that it was only a “close shave” in the sense that meteorites are sometimes reported to have “narrowly missed crashing into the Earth” by 50,000 miles. It might have merited, at worst, a reproving ting of the bell. Instead came a familiar voice. “IT’S YOU AGAIN!” she yelled, wrathfully.

This time the shock brought a retort out of me, probably the harshest thing I have ever shouted at a stranger: “WHY ARE YOU SO UNPLEASANT?”

None of this is X-rated stuff, but it adds up to what I can only call a vendetta – something I never expected to pick up on the way to Waitrose. So I am writing this, as much as anything, in the spirit of rapprochement. I really believe that our third meeting, whenever it comes, can be a much happier affair. People can change. Who knows: maybe I’ll even be walking on the pavement

Mark Watson is a stand-up comedian and novelist. His most recent book, Crap at the Environment, follows his own efforts to halve his carbon footprint over one year.

This article first appeared in the 20 October 2016 issue of the New Statesman, Brothers in blood