Chinese companies delisting: audit standards

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.reuters.com/business/finance/several-chinese-sta…

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Paul,

The insurance company is possibly a major liability to us if there is a China led global financial meltdown.

We are all very bouncy right now. Blue skies of summer.

There are no clouds in the sky. The heavy rain might come at any moment.

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Delisting makes it more difficult to invest in these companies. They are still out there.

Investing in companies that don’t meet audit standards is risky. One would hope investors know.

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I’m not saying it is a bad idea to certify that Chinese companies adhere to international accounting standards, but playing the Devil’s Advocate:

  1. The push to audit the books of Chinese companies has been actively pushed by the US accounting firms and they trade organizations through lobbying Congress

  2. To the best of my knowledge there is no reciprocal requirement that the US allow Chinese auditors (or auditors from any other country for that matter) to go through the books of US companies who are listed on foreign exchanges.

Jeff

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I think investors recognize that book keeping is fundamental to investing. If the books are cooked how can you invest? Rules need to be strict enough so you can trust the numbers.

I don’t mean to imply that China or elsewhere don’t have honest records or allow cheats etc. But recognize we benefit from the tight standards used in the US (although we complain about the impact of GAAP on income sometimes).

Investing internationally requires noting that accounting may be less reliable. Its an additional investing risk.

A treaty allowing for international compliance with specified rules might be a plus. But not likely very soon.

Listing on NYSE also has more vigorous rules. Also a plus for investors.

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2) To the best of my knowledge there is no reciprocal requirement that the US allow Chinese auditors (or auditors from any other country for that matter) to go through the books of US companies who are listed on foreign exchanges.

US companies that are listed on foreign exchanges do indeed fulfill the rules of those exchanges. And there are plenty of rules.

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