The Equitable Act would serve to resolve the longstanding conflict over the inability of the Public Company Oversight Board to examine the work of Chinese auditors that report on the financial statements of US listed Chinese companies.
There are presently over 156 Chinese companies traded on US exchanges with a market capitalization of over $1.2 trillion, including widely held Alibaba Group Holdings (NYSE: BABA).
The PCAOB has long been blocked by China from inspecting Chinese accounting firms (including the Chinese member firms of the Big Four). China argues that allowing the US to enforce US laws on Chinese soil against Chinese persons violates its national sovereignty and risks disclosure of state secrets. US investors suffer because fraud prone Chinese companies are not subject to the same regulatory oversight as other companies that trade on US exchanges.
The Rubio proposal is modelled after an earlier proposal by Representative Mike Conaway of Texas who introduced legislation late in the last session of Congress that effectively expired with the new Congress in January.
The proposal effectively says that Chinese companies will be kicked off US exchanges in three years if a breakthrough in PCAOB inspections does not take place.
Review the press release on Senator Rubio’s website and a related posting to the China Accounting Blog.