Tension is escalating in the regulatory standoff between the United States and China over U.S. access to work papers prepared by audit firms in China. The dispute could put companies with China subsidiaries that rely on audits by Big 4 affiliates there and Chinese companies listed on U.S. exchanges in a tight spot. 

The SEC and the China Securities Regulatory Commission (CSRC) are still sparring how much access the SEC should have to information on China-based companies that are listed on U.S. exchanges. U.S. Administrative Law Judge Cameron Elliot suspended China-based affiliates of all the Big 4 firms from practicing before the Commission for six months because they have refused to hand over documents requested by the SEC as it investigates accounting irregularities at a number of China-based, U.S.-listed companies.

The judge's decision reflects clear frustration on the part of the SEC that the situation has escalated to its current level, says Drew Bernstein, a partner with audit firm Marcum Bernstein & Pinchuk, which has some audit business in China. “They are kinda fed up, and they're using the legal process to raise the bar and put pressure on the whole system,” he says.

Bernstein agrees the likelihood of a suspension occurring anytime soon is not significant given the long appeal process and the high stakes for both U.S. and Chinese economies. Still, the action is escalating and companies are starting to mobilize, he says. “We're getting calls from companies,” he says. “We consider them inquiries. They're saying we're not looking to hire you as our auditor, but given the situation would you be available and could you do this?”

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