Q: Luckin Coffee’s accounting and reporting improprieties have drawn market attention on cross-border regulatory cooperation. Could you please introduce the CSRC’s work on cross-border cooperation?
A: After Luckin Coffee’s revelation of its accounting and reporting improprieties, the CSRC immediately stated its firm stance against all forms of fraud by listed companies. We proactively initiated communications with the US Securities and Exchange Commission (SEC) with regard to possible investigation into Luckin Coffee, expressing our readiness to cooperate fully with the SEC under the IOSCO Multilateral Memorandum of Understanding (MMOU). These communications received positive response from the SEC.
The CSRC has consistently taken a positive attitude towards cross-border regulatory cooperation and supported enforcement actions by overseas securities regulators against financial frauds of companies listed in their respective jurisdictions. Pursuant to relevant cross-border cooperation frameworks including the IOSCO MMOU, the CSRC has in total provided audit working papers of 23 overseas listed companies to multiple overseas regulators, of which 14 sets were provided to the SEC and the Public Company Accounting Oversight Board (PCAOB). In October 2019, regulators of China and the US also reached an agreement on transferring audit working papers which were prepared by Hong Kong-based accounting firms and maintained in the Chinese Mainland. Cooperation in this regard between the two sides has been smooth since.
In the area of listed companies auditing supervision, the CSRC has been working tirelessly to strengthen supervision framework and to enforce rules over auditing firms, with a view to maintaining sound internal quality control and audit service and boosting robust listed company financial disclosure. In the meanwhile, the CSRC has actively engaged in cooperation with overseas audit oversight bodies. With respect to PCAOB’s request to enter into China to inspect PCAOB-registered Chinese accounting firms, both sides have been working together persistently in pursuit of a mutually-satisfactory inspection approach. In 2013, CSRC, the Ministry of Finance of China and PCAOB signed an MOU on enforcement cooperation (click here for more information), resulting in the provision of 4 sets of audit working papers to PCAOB. From 2016 to 2017, the two sides conducted a pilot inspection of one PCAOB-registered Chinese accounting firm, where the Chinese side facilitated PCAOB’s inspection of the quality control system of the firm and the examination by PCAOB staff of audit working papers of three engagements by the firm. It’s fair to say that both sides had worked together continuously to find an effective inspection approach and achieved solid progresses.
Since 2018, the two sides have continued to communicate with each other in order to advance cooperation. Drawing on common international practices of audit supervisory cooperation, the CSRC provided for several times specific proposals to PCAOB on conducting joint inspection of Chinese accounting firms, the latest of which was provided on April 3. We look forward to receiving an early response from PCAOB and furthering our cooperation.
Overseas listing helps diversify investment options and enhance investment returns in the host capital market. It has already proven to bring win-win benefits. Securities regulatory authorities of all countries share the common responsibility of improving the quality of information disclosure by listed companies. Deepening cross-border regulatory and enforcement cooperation is also in line with the common interests of global investors. With a regulatory philosophy that features reverence for the market, reverence for rule of law, vigilance on risks and the primacy of investors, the CSRC has always been and is willing to deepen cooperation with overseas counterparts, including US regulators, to make concerted efforts to crack down on cross-border misconducts and protect the lawful rights and interests of investors across the globe.