Image Source: Towards Data Science
By: Michael Argenta
November 7, 2021
On Friday, The Securities and Exchange Commission (SEC) approved a rule setting stricter standards on foreign companies on U.S. stock exchanges. While international companies are commonly traded, the SEC wants to crack down on companies whose audits have not been inspected by American regulators. This move is to protect American investors and set a precedent moving forward.
The ruling puts into effect a motion created in September by the Public Company Accounting Oversight Board (PCAOB), the agency that oversees the U.S. audit sector. The board will use this new ruling to determine whether they can investigate auditors in jurisdictions including China and Hong Kong. If allowed, the SEC, which runs the PCAOB, could require financial disclosures or implement bans on foreign companies that do not follow accounting standards.
This action carries out a law signed by former President Donald Trump that bans the trading of foreign companies that have not had their auditors inspected by American authorities for three consecutive years. For example, the Chinese government has historically resisted audits of companies allowing potential accounting scandals to take place: hurting world-wide investors.
Overall, the new implementation of required inspections could prohibit about 270 Chinese companies from U.S. trade exchanges by 2024. Although investors could face losses, it is important to set standards and have every corporation abide by them. With stricter requirements for foreign companies on the stock exchange, investing will be safer.