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Vedder Thinking | Articles PCAOB Issues New HFCA Act Determination Report for Chinese and Hong Kong Auditors


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On December 15, 2022, the Public Company Accounting Oversight Board (PCAOB) announced that it was able to inspect and investigate issuer audit engagements of PCAOB-registered accounting firms headquartered in the People’s Republic of China (PRC) and Hong Kong in a manner consistent with the Holding Foreign Companies Accountable Act (HFCA Act). As a result, China-based issuers will have continued access to U.S. capital markets while compliance is maintained.

The HFCA Act, an amendment to the Sarbanes-Oxley Act of 2002, was signed into law in December 2020 to address concerns over audit inspections of China-based companies trading in the United States. The HFCA Act requires the SEC to identify all issuers subject to the periodic reporting requirements of the Securities Exchange Act of 1934 whose audited financial reports are prepared by an accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect due to a position taken by an authority in that jurisdiction. If the PCAOB is unable to inspect the issuer’s auditor for three consecutive years, the issuer will be prohibited from having its securities listed for trading on a U.S. exchange or otherwise traded in over-the-counter markets subject to the jurisdiction of the SEC.

The PCAOB’s new determination report follows an August 2022 Statement of Protocol signed by the PCAOB with the China Securities Regulatory Commission and the Ministry of Finance of the PRC. Pursuant to the Statement of Protocol, the PCAOB and the PRC created a framework for compliance with the HFCA Act that allows the PCAOB sole discretion to select audit firms for review, provides PCAOB inspectors and investigators access to complete audit work papers and gives the PCAOB the ability to directly interview and take testimony from audit personnel.

From September to November 2022, PCAOB staff conducted inspections and investigations in China and Hong Kong to verify that the access provided by the Statement of Protocol was sufficient to establish compliance with the HFCA Act. As a result of this access, the PCAOB voted to vacate its previous 2021 determinations of noncompliance with the HFCA Act. The determination of the PCAOB reflects its ability to access audit firms, not the quality of audits conducted, as the PCAOB has preliminarily identified numerous deficiencies at the firms examined. These deficiencies will be referred for further investigation and potential sanctions and be made public as part of the final inspection reports, to be released later in 2023. Regular inspections of China- and Hong Kong-based auditing firms by the PCAOB are planned for early 2023 and beyond, with new investigations being initiated as needed.

The full PCAOB 2022 HFCAA Determination Report is available here. The PCAOB’s fact sheet is available here. A statement from PCAOB Chair Erica Y. Williams is available here, and a related statement from SEC Chair Gary Gensler is available here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt


Nicholas A. Portillo