Three sources familiar with the situation said that U.S. officials had chosen e-commerce behemoth Alibaba Group Holding Ltd (9988.HK) as well as other U.S.-listed Chinese corporations for audit inspections beginning next month.
The action comes after Beijing and Washington struck a historic audit agreement on Friday that allows American regulators to review accounting firms in Hong Kong and the PRC, potentially putting an end to a protracted dispute that had threatened to bar more than 200 Chinese businesses from U.S. stock transactions.
According to the sources, Alibaba has been informed that it is one of the first Chinese businesses whose audits would be examined in Hong Kong by the Public Company Accounting Oversight Board (PCAOB), a U.S. audit agency.
The largest e-commerce company in China’s accounting firm, PwC, has also been notified of the audit work inspection, according to the sources, who declined to be named owing to confidentiality issues.
An inquiry for comment from Alibaba was not immediately returned, and a PwC spokeswoman stated that it was company policy to just not speak on any client-related concerns.
The PCAOB did not comment on inspections, according to a spokeswoman. Outside of business hours, a statement from the China Securities Regulatory Commission (CSRC) was unable to be immediately obtained.
After the revelation, Alibaba’s U.S.-listed shares decreased by almost 3% after increasing by around 1% in pre-market trading.
Since more than ten years ago, U.S. officials have wanted access to the audit records of Chinese companies that are listed on the American stock exchange, but Beijing has been unwilling to allow U.S. regulators to scrutinise its accounting firms, claiming national security concerns.
The most expensive Chinese company listed in the United States as of Monday is Alibaba, which went live in New York in 2014 in what was then the largest IPO in history. As of that day, Alibaba’s market value was $256 billion.
Without naming the businesses, the PCAOB stated on Friday that the watchdog had contacted the chosen ones and that its representatives would be arriving in Hong Kong, where the investigations would take place, by mid-September.
PCAOB commented that the regulator, which is in charge of overseeing audits of U.S.-listed firms, would choose organisations based on risk indicators like size and sector, and no companies may anticipate special treatment.
The number of which other Chinese enterprises were included in the initial wave of U.S. inspections was not immediately known from sources.
Alibaba was founded in 1999 and has now diversified into a number of rapidly expanding industries, including cloud computing and the internet of things. Its primary business is e-commerce. It is also the owner of the significant Chinese digital imaging and navigation company AutoNavi Holdings Ltd.
It was included in July on the list of Chinese businesses that the U.S. Securities & Exchange Commission (SEC) may delist for failing to meet audit criteria.
The list currently includes more than 160 Chinese businesses, including electric vehicle manufacturer Nio Inc. and fellow e-commerce company JD.com Inc (9618.HK).
Current U.S. regulations state: that Chinese enterprises that fail to comply with requests for audit working papers will have their trading privileges in the country revoked in early 2024.
Alibaba announced its intention to complement its New York presence with a predominant focus in Hong Kong, aiming to attract investors from mainland China, only days before it was listed on the SEC’s delisting radar.
The IT giant said it anticipates finishing the primary listing by the end of 2022. It has had a secondary listing on the Hong Kong Stock Exchange since 2019.
