Last week, in a joint statement, Securities and Exchange Commission Chair Jay Clayton, the Director of the Division of Corporation Finance, Bill Hinman, the SEC's Chief Accountant, Sagar Teotia, and the PCAOB Chair, William Duhnke, commented on the continuing dialogue among the SEC, PCAOB, and representatives from the four largest US audit firms regarding audit quality across their global networks. The discussion focused on the challenges associated with audit work in emerging markets, including in China. The statement notes that the PCAOB continues to be prevented from inspecting the audit work and practices of PCAOB-registered audit firms in China on a comparable basis to other non-U.S. jurisdictions. The statement notes that the four largest audit firms audit the financial statements of approximately 140 China and China-based, U.S. exchange-listed, public companies, and the China and Hong Kong network firms for these four audit firms participated in 5% or more of the total audit hours in approximately 120 instances related to non-China, U.S. listed companies with operations in China. The SEC and the PCAOB will continue to have similar discussions with other audit firms, and will continue to monitor developments in this area.
The joint statement also addressed the fact that US-listed companies with significant operations in China may be affected by the coronavirus, while other companies that do not have operations in China may nonetheless be affected by these developments to the extent that their supply and distribution chains are affected. The SEC and PCAOB also discussed the exposure of these companies and the resulting impact of such exposure on financial disclosures and audit quality. The SEC intends to monitor the effects of the virus on financial reporting, auditing and review processes.
The statement notes that the SEC and PCAOB representatives emphasized, among other things, (1) the need to consider potential disclosure of subsequent events in the notes to the financial statements in accordance with guidance included in Accounting Standards Codification 855, Subsequent Events and (2) the SEC's general policy to grant appropriate relief from filing deadlines in situations where, in light of circumstances beyond the control of the issuer, filings cannot be completed on time with appropriate review and attention.
Relief may be made available on a case-by-case or broader basis as circumstances merit.
See the full statement here.
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