The Public Company Accounting Oversight Board (PCAOB) has, for the first time ever, "secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong," the board announced.

As a result, the PCAOB voted to vacate its previous determinations to the contrary. The board credited its success to provisions of the Holding Foreign Companies Accountable Act (HFCAA), which authorized the Securities and Exchange Commission (SEC) to delist overseas companies if they prohibited PCAOB inspections for three consecutive years.

PCAOB Chair Erica Williams acknowledged the law in a statement. “This historic access was only possible because of the legislation passed by Congress,” she said. "We have said continuously that access to U.S. markets is a privilege, not a right, and China received that message loud and clear."

Williams also noted that the process is ongoing.

“This is the beginning of our work to inspect and investigate firms in China, not the end,” she said. “The PCAOB is continuing to demand complete access in mainland China and Hong Kong moving forward. Our teams are already making plans to resume regular inspections in early 2023 and beyond, as well as continuing to pursue investigations.”

This PCAOB's announcement pertained only to access and not to audit quality. "It is important to understand: today’s announcement is about one question and one question only—is the PCAOB able to inspect and investigate firms in mainland China and Hong Kong completely at this time?" Williams said. "The answer, following thorough and systematic testing, is yes. ... Today’s announcement should not be misconstrued in any way as a clean bill of health for firms in mainland China and Hong Kong. It is a recognition that, for the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them."

Williams’s satisfaction with the ability to inspect and investigate firms in mainland China and Hong Kong was based on the work of 30 PCAOB staff members who conducted on-site inspections and investigations in Hong Kong over a nine-week period from September to November. That resulted in the PCAOB achieving three criteria for complete access: its exercise of sole discretion to select the firms, audit engagements, and potential violations it inspected and investigated—without consultation with, nor input from, PRC [People’s Republic of China] authorities; its ability to view complete audit work papers with no redactions, and the retention of necessary information; and its direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspected or investigated.

The PCAOB said that, should it encounter any obstructions by the Chinese authorities, it would “act immediately to consider the need to issue new determinations consistent with the HFCAA.”

In August, the PCAOB signed a deal with the China Securities Regulatory Commission and the country’s Finance Ministry to allow PCAOB inspectors to enter China and Hong Kong to inspect audit firms and work papers, after the two countries sparred over the issue for roughly 15 years. Until that time,  China and Hong Kong were the only jurisdictions in the world that did not allow PCAOB inspections.