(Yicai Global) Aug. 10 -- China has proposed sturdier cooperation on cross-border securities oversight after a US government report last week called for tougher auditing rules for US-listed foreign companies.

Open, honest and direct dialogue and cooperation are the right way to resolve the issue of co-auditing Chinese firms that are listed in the US, the China Securities Regulatory Commission said in a statement on Aug. 8. It sent US regulators a new proposal on Aug. 4 that takes into account that country’s most recent thinking.

Chinese firms must comply with US audit disclosure rules if they want to continue trading on US markets, the President's Working Group on Financial Markets -- a high-powered group of US financial market regulators -- suggested in an Aug. 6 report after concerns over investor risks bubbled up at the start of April when Nasdaq-listed Luckin Coffee admitted to a CNY2.2 billion (USD315.8 million) accounting fraud.

In the wake of the scandal, US SEC Chairman Jay Clayton reminded investors on April 23 not to put money into the shares of US-listed Chinese companies when adjusting positions in the near future due to the issue on information disclosure.

The PWG’s “recommendations are designed to address risks to investors in U.S. financial markets posed by the Chinese government’s failure to allow audit firms that are registered with the Public Company Accounting Oversight Board (PCAOB) to comply with U.S. securities laws and investor protection requirements,” the Treasury Department said in a statement to accompany the release of the PWG’s report.

The report made five recommendations. One of them suggests that as a condition of an initial public offering and continued listing in the US, the Public Company Accounting Oversight Board should have the right to review audits of Chinese firms traded in the US. The Treasury and the Securities and Exchange Commission plan to develop new rules based on the recommendations.

In its recent response, the CSRC said China never prohibits or prevents accounting firms from providing audit working papers to overseas regulators.

Just as the PWG’s report notes, China's securities watchdog has provided its US counterpart with the audit working papers of various US-listed Chinese firms, the CSRC said. The essence of Chinese law and regulations is that information exchange should happen via regulatory cooperation channels, which is in line with standard international practice, it added.