Real Audits for Chinese Firms Listed in the U.S.

Investors on U.S. stock exchanges deserve not only independent audits, but oversight of the auditors.

The Kennedy-Sherman bill requires Chinese companies listed on American exchanges to allow the same Public Company Auditor Oversight Board supervision of their auditors as companies from the U.S. and most of the world.

You say the language in the bill is vague and leaves too much to be decided by the Securities and Exchange Commission. The House passed much more specific language in the Sherman-Gonzalez amendment to the fiscal year 2021 National Defense Authorization Act. Republican senators demanded that the provision be struck from the NDAA. You suggest that rather than pass the Senate bill, the House should have amended it and made it more specific. It then would have been sent back to the Senate and likely would have died.

As chairman of the House's Investor Protection Subcommittee, I believe that those investing on U.S. stock exchanges deserve not only independent audits, but oversight of the auditors by the PCAOB. Passing the bill when we did was the only way to achieve this objective. Investors on U.S. exchanges should get the same level of financial-statement integrity whether the issuer is in the U.S., China or elsewhere.

I believe that China will eventually concede and allow PCAOB review of audits of Chinese companies. China knows that if its companies aren't on U.S. exchanges, less American capital will flow to them. That capital would then be invested mostly in U.S. companies. That wouldn't be a bad outcome, but it isn't the intent of the legislation.

Rep. Brad Sherman, CPA (D., Calif.)

Sherman Oaks, Calif.

Appeared in the December 29, 2020, print edition of The Wall Street Journal as "Real Audits for Chinese Firms Listed in U.S.."