On August 26, 2022, the Public Company Accounting Oversight Board signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China, taking a deemed first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.

The PCAOB inspects and investigates registered public accounting firms in more than fifty jurisdictions worldwide, however, for many years the PCAOB’s access to inspect and investigate registered public accounting firms in mainland China and Hong Kong has been obstructed. With the passage of the Holding Foreign Companies Accountable Act (HFCAA) by Congress in 2020, if the PCAOB determines for three consecutive years that the positions taken by the authorities in the People’s Republic of China prevented inspections and investigations, then companies audited by those firms would be subject to a trading ban on U.S. markets. In 2021, the PCAOB made the first of its official determinations of obstruction.

The agreement contains three important provisions that, if followed, would grant the PCAOB complete access for
the first time:

1) The PCAOB has sole discretion to select the firms, audit engagements and potential violations it inspects and
investigates – without consultation with, nor input from, Chinese authorities.

2) Procedures are to be in place for PCAOB inspectors and investigators to view complete audit work papers with
all information included and for the PCAOB to retain information as needed.

3) The PCAOB has direct access to interview and take testimony from all personnel associated with the audits the
PCAOB inspects or investigates.

As noted in the PCAOB’s news release, the real test comes in mid-September when the PCAOB expects to have
inspectors on the ground to begin conducting on-site inspections and investigations of firms headquartered in
mainland China and Hong Kong.