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Congressman Brad Sherman

Representing the 30th District of CALIFORNIA

Sherman Introduces Legislation to Protect Investors from Foreign Company Accounting Failures


May 20, 2020
Press Release

Washington, D.C. – Today, Congressman Brad Sherman (D-Sherman Oaks), who is also Chair of the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets and Co-Chair Congressional Caucus on CPAs and Accountants, announced the introduction of legislation to ensure that foreign companies listed for trading on U.S. stock exchanges are subject to the same rigorous accounting audit oversight as U.S. companies. This legislation, the Holding Foreign Companies Accountable Act, will take a number of important steps to protect U.S. stock market investors from the type of major accounting failures that were seen in the early 2000s. Earlier today, the Senate passed companion legislation lead by Sens. John Kennedy, Chris Van Hollen, Marco Rubio, and Bob Menendez.

Currently, the Public Company Accounting Oversight Board is unable to fully inspect the audit work and practices of PCAOB-registered auditing firms in a handful of foreign jurisdictions, primarily China. In most cases, audit firms in those foreign countries cite local laws related to data protection, privacy, confidentiality, or national security as the reason for being unable to provide the PCAOB with the information they need to complete their inspections. Just this week the Nasdaq stock exchange moved to delist Luckin Coffee, a company based in China, after executives at the company admitted to fabricating $310 million in sales between April and December 2019.

According to the PCAOB, accounting firms which are unable to provide information necessary for effective oversight currently serve as the principal auditor for 224 U.S.-listed companies which have a combined total of $1.8 trillion in market capitalization.[1] Among these companies is Luckin Coffee. According to a joint statement by the SEC and PCAOB “(t)he inability to date to achieve this level of regulatory cooperation with Chinese authorities raises a number of investor protection and general oversight issues.”

“I commend our Senate counterparts for moving to address this critical issue, something I have been working on as Chair of the Capital Markets Subcommittee,” said Congressman Sherman. “Had this legislation already been signed into law, U.S. investors in Luckin Coffee likely would have avoided billions of dollars in losses.”

“As we continue to experience the economic fallout and volatility caused by the COVID-19 pandemic, the need to protect main street investors is all the more important. For too long, Chinese companies have disregarded U.S. reporting standards, misleading our investors. Publicly listed companies should all be held to the same standards, and this bill makes commonsense changes to level the playing field and give investors the transparency they need to make informed decisions. I’m proud the Senate was able to pass our legislation today with overwhelming bipartisan support, and I appreciate Congressman Sherman’s initiative in leading this charge in the House,” said Senator Van Hollen.

The Holding Foreign Companies Accountable Act would protect investors and enforce a level playing field between U.S. and foreign companies by requiring companies which goes three years without the appropriate PCAOB audit inspection to be de-listed from U.S. exchanges. The legislation also requires foreign issuers to provide disclosures as to whether the company is owned or controlled by a foreign government.



[1] Securities and Exchange Commission and Public Company Accounting Oversight Board. (2018, December 7). Statement on the Vital Role of Audit Quality and Regulatory Access to Audit and Other Information Internationally—Discussion of Current Information Access Challenges with Respect to U.S.-listed Companies with Significant Operations in China [Press Release].