(Yicai Global) Aug. 29 -- Chinese and US authorities have come to a landmark audit oversight cooperation agreement, a major step towards resolving auditing tensions that threaten to force many Chinese companies off US bourses.

Both China and the US can inspect audit firms within the jurisdiction of both sides in accordance with the laws and mandates of their respective authorities, according to the agreement penned by the China Securities Regulatory Commission, China’s Ministry of Finance and the US Public Company Accounting Oversight Board on Aug. 26. Chinese and US regulators will help one another to the extent permitted by law, it added.

“The signing of the audit supervision cooperation agreement marks a key step forward by regulators in China and the US towards resolving the audit oversight issue by strengthening cooperation, which is in line with the hopes and expectations of the market,” a high-ranking official at the CSRC said.

The Holding Foreign Companies Accountable Act passed by the Trump administration in 2020 requires all foreign firms listed on US stock exchanges to, among other things, meet the Public Company Accounting Oversight Board’s accounting requirements. Should any company fail to do so for three consecutive years it will be prohibited from trading on any US bourse or over-the-counter exchange.

Since then, over 100 Chinese companies, including e-commerce giants Alibaba Group Holding and JD.com as well as internet giant Baidu, have been placed on a US delisting watchlist. But the sharing of accounts overseas contravenes China’s own data security regulations.

“The CSRC and other departments have recently improved confidentiality regulations for offshore listings, and put forward clear requirements for standardizing the information security management of audit papers,” the person said.

Should this audit cooperation be successful, it will help prevent the US delistings of many Chinese firms and make the US a more popular overseas listing destination for Chinese businesses, he added. More than 200 Chinese companies are listed on US bourses, and just over 30 Chinese accounting firms are registered with the Accounting Oversight Board.

The Chinese side will provide audit services for US-listed Chinese stocks, and the audit papers will be stored at Hong Kong offices on the mainland, according to the agreement. The two sides will coordinate in advance on any investigation plans. Any audit papers that US regulators need access to will be obtained by and transferred through the Chinese side. The Chinese side will assist in contacting any personnel of these accounting firms.

Despite the significant step, US-listed Chinese stocks continued to slide on Friday, egged on by US Federal Reserve Chairman Jerome Powell's statement that the US would continue to raise interest rates to curb inflation.

E-commerce giant Alibaba Group Holding [NYSE:BABA] closed down 1.89 percent at USD98 on Aug. 26. Online retailer JD.com [NASDAQ:JD] dipped 2.2 percent to finish the day at USD63.46. Short video platform Bilibili [NASDAQ:BILI] sank 7.7 percent to end at USD25.24. The Nasdaq China Golden Dragon China Index, which measures the performance of Chinese US-listed stocks, closed down 0.65 percent at 7,518.1.

Editor: Kim Taylor