Should a foreign government stymie the board’s ability to vet the country’s auditors, that would presumably fail the test. Under the guidelines, the board could evaluate its access to auditors based on a variety of factors, such as the ability to inspect documents and interview personnel. The PCAOB adopted a framework this month that would enable it to take the necessary steps to ban companies in uninspected jurisdictions from U.S. exchanges if its home country prevents the PCAOB from inspecting the company’s audit firm for three straight years. Specifically, the HFCAA mandates that a foreign company can’t trade on U.S. Gensler noted that while more than 40 countries open their auditors to inspection by the PCAOB, China and Hong Kong do not. The law essentially requires the Public Company Accounting Oversight Board to “audit the auditors” in foreign countries for companies based in those jurisdictions to trade on U.S. We’ve told you in the past about the heartburn China-based companies suffered over the HFCAA. Gensler’s threat may sound drastic to some, but it’s the result of the Holding Foreign Companies Accountable Act, which took effect at the end of 2020. In a Wall Street Journal op-ed, the head of the regulatory agency warned that by early 2024, it may need to prohibit trading in roughly 270 such companies. Earlier this month, Securities and Exchange Commission Chair Gary Gensler fired a warning shot at China-connected companies.
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