MEMORANDUM OF UNDERSTANDING ON ENFORCEMENT COOPERATION
1. What is the role of the Public Company Accounting Oversight Board?
The Public Company Accounting Oversight Board (“PCAOB”) is a nonprofit corporation established by the Congress of United States to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate and independent audit reports. Under the Sarbanes-Oxley Act, non-US public accounting firms that audit or play a substantial role in the audit of US issuers, brokers and dealers are subject to oversight by the PCAOB. Under the Act and the Board’s rules, non-US registered audit firms are subject to PCAOB inspections in the same manner as US audit firms. This often raises special considerations. Currently, over nine hundreds non-US audit firms from more than eighty-five countries have registered with the PCAOB. The PCAOB began talking about these issues with its non-US counterparts not long after its establishment, and adopted a cooperative framework that allows the PCAOB to rely on inspection or enforcement work performed by a home-country regulator.
2. “Memorandum of Understanding on Enforcement Cooperation” as the beginning to the end of the battle between US and Chinese regulators, what should we know about it?
The PCAOB and the China Securities Regulatory Commission (“CSRC”) and the Ministry of Finance of People’s Republic of China (“MoF”) executed a Memorandum of Understanding on Enforcement Cooperation (“MOU”) on 10th May, 2013. The MOU established a cooperative framework between the parties for the productions and exchange of audit documents relevant to investigations in both countries’ respective jurisdictions. More specifically, it provides a mechanism for the parties to request and receive from each other assistance in obtaining documents and information in furtherance of their investigative duties.
According to Article IV of the MOU, the assistance available under the MOU is defined to include “providing information and documents held in the files of the Requested Party”. It also includes the exchange of documents which relate to:
Professional Services-“documents sufficient to identify all audit review or other professional services……performed by audit firms, including, but not limited to, contracts, engagement letters, or other documents defining the nature and scope of the professional services”;
Work Papers-“audit working papers or other documents held by audit firms……”;
Quality Control System-“documents sufficient to identify firms’ quality control systems including organizational structures, policies adopted and procedures established to provide assurance of compliance with professional standards”.