October 23, 2020

SEC, China Will Probably Compromise Over Big 4 Chinese Affiliates Someday, Says Guy

The SEC's move against the Big 4's Chinese affiliates on Monday has people all worked up. On the one hand, yes, if the SEC were to delist a lot of Chinese companies that would make a lot of people sad. Also, if fewer Chinese companies were to consider accessing U.S. markets because they aren't so interested in complying with U.S. securities law, that would make a lot of people sad. Of course, lots of people have been all sad face when they lost money thanks to many Chinese companies' suspect financial reporting. 

The problem we have is that China pretty much does whatever the hell it wants to do and the SEC sucks. Futhermore, the accounting firms aren't any help because they're all like, "We can't give you these work papers because that would break Chinese law, but we hope you guys can work things out because, you know, international business harmony, something something." 
 
Okay, they're playing dumb but you kinda have to see their point because if you break Chinese law on the wrong day, things could end up going very, very badly for you. Nobody wants to see auditors die. Not even ones at BDO.
 
So yeah, it's a doozy, but at least one guys is confident that things will get worked out, you know, at some point:   
Citi’s Ravi Sarathy writes that based on such talks he expects a compromise solution “between US and China authorities around and ability to inspect the audit process and controlled access to audit documents.” 
 
But the bad news: The issue will linger for the next 10 months and perhaps longer, resulting in increased volatility in the secotr [sic]. Negotiations could be further slowed given the leadership changes not just in the Chinese government but also the SEC. 
Let's adjust our expectations accordingly.
 

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