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Letter to Secretary Lew on US-China Audit Agreements

The Honorable Jacob J. Lew
Secretary
United States Department of Treasury
1500 Pennsylvania Avenue
Washington, DC 20220

Dear Secretary Lew:

The undersigned organizations, which represent hundreds of thousands of businesses, small and large, from all sectors of the economy employing tens of millions of Americans, are deeply concerned by the failure of the relevant parties to reach an agreement granting regulators access to audit work papers. A failure to reach agreements on these issues may severely harm businesses and their investors in both the U.S. and China. This impasse threatens to create a regulatory protectionism to the great detriment of both economies and their capital markets as businesses—issuers and users of financial reports—must have a strong system of transparency and internal controls to raise the capital needed to grow and operate.

Given the potentially serious consequences of failing to reach an agreement, including for U.S.-China relations, we strongly urge both governments to redouble their efforts and use the upcoming U.S.-China Strategic and Economic Dialogue (“S&ED”) as the vehicle for reaching a workable agreement. Doing so is critical to our businesses and the proper functioning of the global marketplace.

Issuers, investors and service providers must be able to operate globally without being pulled in opposite directions by competing regulatory regimes and obligations. For decades, financial regulators around the world have been able to develop protocols and agreements that recognize this fact. The development of such agreements and protocols ultimately requires mutual respect, communication, flexibility and understanding of competing priorities on the part of all necessary participants. The existence of financial regulation in any one particular country cannot be the end of the discussion; cooperative cross-border arrangements among regulators must be the goal.

Indeed, in the May 2012 S&ED, the United States and China affirmed their commitment to implement the G-20 reforms and cooperate to support flows of productive capital, as well as the stability of financial markets in both countries. We agree that these reforms help develop conditions favorable to business growth and investment return. Coordination of regulatory and enforcement efforts is at the heart of the G-20 agenda, and underscores the importance of reaching agreements vital to the economies and businesses of both countries.

If there is a failure to reach a timely agreement with respect to the sharing of confidential information for regulatory purposes and the inspection of Public Company Accounting Oversight Board registered accounting firms located in China, we foresee the following potential consequences:

  1. The ability of American businesses operating in China to issue audited consolidated financial reports in accordance with US requirements could be compromised;
  2. Should the foregoing occur, investor confidence in the accuracy and reliability of corporate financial statements will be undermined, which could result in lower valuations of public companies, reduced incentives for companies to go public, and jeopardize the ability of public companies to raise new capital; and
  3. The ability of Chinese companies—both those currently listed and those seeking to list here in the future—to access the U.S. capital markets could be jeopardized, thus fostering isolationism to the detriment of all market participants and the economies of both nations

Accordingly, we respectfully request that the leading economic officials of both countries use the upcoming S&ED to reach agreements in these areas. Agreements to share information and cooperate in developing effective cross-border audit oversight programs between the U.S. and China will provide for a more efficient marketplace and plant the seeds for long-term economic growth on both sides of the Pacific.

We thank you for your leadership, and look forward to your progress on reaching these important agreements. We pledge to assist you in any manner that we can.

Sincerely,

Business Roundtable
U.S. Chamber of Commerce
Financial Executives International
The U.S.-China Business Council
National Retail Federation

Cc:

The Honorable Mary Jo White, U.S. Securities and Exchange Commission
The Honorable James Doty, Public Company Accounting Oversight Board

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