Signage is seen at the headquarters of the U.S. Securities and Exchange Commission (SEC) in Washington, DC, U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Andrew Kelly

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WASHINGTON, Sept 6 (Reuters) – U.S. accounting firms that agree to conduct audits of New York-listed Chinese and Hong Kong companies seeking to avoid possible trade bans risk breaking U.S. rules, the Securities and Exchange Commission warned on Tuesday. United States Exchange Commission (SEC).

Worried about being kicked out of U.S. stock exchanges if China does not allow the SEC’s accounting watchdog to scrutinize the audits of Chinese companies, some U.S.-listed Chinese and Hong Kong companies recently changed their lead auditor from a local business to a U.S. or foreign business, the SEC said.

“Such arrangements pose particular challenges that raise questions about whether newly engaged registered accounting firms … will be able to meet their responsibilities,” the SEC’s acting chief accountant wrote. Paul Munter.

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Foreign auditors may not have the local knowledge, expertise, language skills or access to company personnel needed to conduct rigorous audits, Munter noted.

U.S. regulators have demanded access to U.S.-listed Chinese companies’ audit documents for more than a decade, but Beijing is reluctant to let foreign regulators inspect its accounting firms, citing national security concerns. Read more .

While the two sides agreed last month to a preliminary agreement to give the SEC’s accounting watchdog, the Public Company Accounting Oversight Board (PCAOB), access to Chinese audit documents, it is not unclear whether this agreement will work in practice. About 200 Chinese issuers listed in the United States could be delisted if the deal does not go through.

Munter warned the new lead auditors that they should acquire the company’s audit documents from predecessor local audit firms and seek a range of information relating to, among other things, the integrity of the company’s management. issuer, any disagreements the auditor may have had with company management, and prior communications with the company’s audit committee.

Without this information, switching listeners “just trades one bad result for another and doesn’t adequately address the underlying problem,” he added.

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Reporting by Michelle Price Editing by Chris Reese and Jonathan Oatis

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