“Provisional regulations on CPA practices carrying out audit services for the PRC enterprises listed outside the PRC(Draft)”

On 26 May, the Ministry of Finance from the People’s republic of China (the PRC) drafted "Provisional regulations on CPA practices carrying out audit services for the PRC enterprises listed outside the PRC(Draft)" (hereinafter referred to as the "Draft"). Some of the key points of the draft are as follows:

Article 7 of the "Draft"

Hong Kong SAR, Macao SAR and Taiwan’s CPA firms which entrusted to carry out audit services for PRC enterprises listed outside China should coordinate with a properly registered PRC CPA firm which has more than 25 registered accountants, practicing in good quality and professional ethics, and has not been suspended in the last 3 years.

The engaging CPA firms of Hong Kong SAR, Macao SAR and Taiwan are accountable for auditing responsibility. At the same time, they enjoy the right of distributing business assignment and the right in the distribution of interests.

Article 8 & 9 of the "Draft"
The oversea CPA firms should notify the related finance department of that engaged PRC entity in its province at least 7 days in advance before entering into the Chinese region and file the copy to Ministry of Finance.  At the same time, the oversea CPA firms should provide the engagement letter signed with the engaged entity in the PRC and together with the cooperation agreement signed with the PRC CPA firms to Ministry of Finance.

The oversea CPA firms should report the condition of business cooperation with the PRC CPA firm to the related finance department of the province and Ministry of Finance within 60 days of cooperation.

Article 8 of the "Draft"
If the oversea CPA firms could not provide the true and complete information (include engagement letter and business cooperation agreement) to the related authorities, the provincial finance department will notify a time limit for correction while transfer the case to the related regulatory body of its origin region. It would be penalized by a public announcement for serious case. The oversea CPA firm cannot engage in the audit of PRC enterprises that listed outside China within 5 years after the public announcement date.

Article 12 of the "Draft"
The PRC enterprises and the engaging oversea CPA firms should strictly comply with the agreement set out by the domestic and foreign regulatory bodies by which the overseas listed Chinese enterprises involved in legal proceedings and other matters which are required an inspection by the foreign judicial or regulatory bodies on the audit working papers.

Article 2 of the "Draft"
Enterprises which are legally established in Mainland China and are directly or indirectly held more than 50% of the shares, corporate equity, property shares, voting rights or other similar rights by the investors from Hong Kong SAR, Macao SAR or Taiwan are not restricted by this "Draft".

(Remark: the content are translated from original Chinese version and please refer to it if have any doubts in understanding)

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