PCAOB Outlines Audit Risks in Emerging Markets

Posted by Nancy Johnson on October 4, 2011

Yesterday, the PCAOB  issued Staff Audit Practice Alert No. 8: Audit Risks in Certain Emerging Markets, which the PCAOB says "focuses on the risks of misstatement due to fraud that auditors might encounter in audits of companies with operations in emerging markets, auditors' responsibilities for addressing those risks, and certain other auditor responsibilities under PCAOB auditing standards." 

Publication of the alert comes as the PCAOB tries to investigate alleged accounting fraud at several Chinese companies listed on U.S. public exchanges. Chinese law prohibits foreign access to the audit work papers of these companies, preventing the PCAOB and other U.S. agencies from pursuing action against the companies, their executives, and their auditors.

Officials from the PCAOB have been negotiating for months with Chinese officials over the right to conduct mutual inspections of audit firms. In a speech given today in Washington, DC, PCAOB chairman, James Doty, expressed hope of reaching an agreement with China in this area, but also said he would pursue other avenues if a deal could not be reached. 

With alleged accounting fraud and cross-agency negotiations in the background, it's no wonder the PCAOB issued this publication.  Its lessons are applicable not only for auditors, but also for investors, audit committee members, and any other individuals with a vested interest in doing business with companies in emerging markets -- and especially, in China. 


Tags: reverse merger, audit committee, Compliance in China