Recently, a bipartisan bill was introduced in Congress that would require that U.S. listed foreign companies provide U.S. regulators access to accounting records tied to audit reports.
The Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges Act, or the EQUITABLE Act, would prohibit the listing of the securities of foreign companies whose audit reports are not fully accessible for inspection by the Public Company Accounting Oversight Board (PCAOB). For existing foreign companies with a class of securities listed on U.S. exchanges, the EQUITABLE Act would provide a three-year grace period to comply with the rules. In addition, foreign companies with a class of securities listed on U.S. exchange would be subject to a robust disclosure regime in order to inform investors of any special risks. For example, foreign companies would be required to disclose the financial interests owned by governmental entities. The EQUITABLE Act would also require a broker-dealer to disclose to a retail investor the risks associated with securities issued by foreign companies.
The PCAOB has published a list identifying each company whose audit reports are not inspected by the PCAOB. According to the list, most of these companies are based in China. Currently, the Chinese government effectively blocks U.S. regulators from inspecting the full audit reports of publicly traded companies headquartered in Hong Kong and mainland China. Some predict that Chinese companies that are currently listed on U.S. exchanges may seek to relist on other exchanges, such as in Hong Kong.