Exchange Seeks More Scrupulous Accounting Oversight of Foreign Companies

On the heels of restrictions recently proposed to the SEC that would make it harder for some Chinese companies to debut as initial public offerings, officials for the Nasdaq exchange stressed that regulators need to do a better job of addressing transparency and accounting issues for firms based in foreign jurisdictions that are looking to go public through U.S. markets.

The new rules include greater scrutiny of the audit firms of overseas companies listed on Nasdaq, the oversight of which is led by both the SEC and PCAOB. The agencies are currently prevented from inspecting audit work papers in China. As U.S. investors have increased their exposure to emerging markets like China in recent years, more and more accounting disclosure shortcomings have come to light.

“The broader issue though is this issue of disclosure and PCAOB oversight of the audit firms and I think that’s an issue for the SEC to address,” says Nasdaq president and CEO Adena Friedman.

The U.S. Senate passed legislation in late May that could prevent some Chinese companies from listing shares on U.S. exchanges unless they follow standards for U.S. audits and regulations, but the measure still must pass the House of Representatives and be signed by the president to become law.