Square-Off: Should IPO Regs Be Relaxed?
In a May op-ed in the Financial Times, Harvard University professor Hal Scott lowered the boom on the SEC for what he called its “stringent” disclosure regulations for initial public offerings. A strong IPO market is economically desirable because going public allows companies to grow and create jobs. Regardless, the U.S. market has spent most of the past decade in a fairly pronounced slump. If historical norms had held, the number of public companies today would be at least 1,500 greater ..
The Public Company Accounting Oversight Board will soon have increased access to U.S.-listed companies in China. The auditing overseer recently struck an agreement with the Chinese government to begin “observational visits in China,” according to a PCAOB spokesperson.
Under the agreement, the board can only observe the Chinese audits, not perform its own. So far, just one visit has been arranged over the next couple of months, and the deal is being called a “staff-level agreement,” as opposed to a more formal linkage. But it is a start in chipping away at the disputes the U.S. and China have had over U.S. regulatory access to audits. Previously, China had refused any U.S. regulator inspections of audits of U.S.-listed companies in China.
Document transparency in offshore locations is an important issue for the PCAOB. “We are all aware of notorious examples of frauds directed by corporate headquarters but perpetrated in remote locations, beyond the expected gaze of auditors and regulators,” James Doty, the oversight board’s chairman, said in a speech in London earlier this month.
The Securities and Exchange Commission also ranks cross-border audit-document access high on its agenda, working with the China Securities Regulatory Commission in achieving greater transparency. But the SEC and China have come to loggerheads over China’s insistence that more access to audit documents would breach its sovereign authority.
One notable audit case pitted the Shanghai unit of Deloitte Touche Tohmatsu Limited (DTTL) against both the SEC and Chinese regulators. The SEC began investigating the firm’s former client, software consultancy Longtop Financial Technologies of Hong Kong, after the firm failed to provide annual reports and made false statements concerning its financial records for years. Ultimately, the SEC subpoenaed Deloitte for the audit documentation, and Deloitte resigned as the firm’s auditor.
Deloitte, for its part, says geopolitical issues in general may be at the core of cross-border audit disagreements with China. “Frankly, in our view, this is fundamentally a dispute between China and the U.S.,” and the solution “needs to be diplomatically attained,” DTTL CEO Barry Salzberg told CFO.
Until then, the firm plans to operate in a business-as-usual fashion in China. Says Salzberg: “Our objective is to serve our clients well — deliver services to multinational companies and local companies that operate in China with the highest level of quality.”