Hong Kong U.S. officials have picked e-commerce giant Alibaba (NYSE: BABA) Group Holding Ltd. and other Chinese businesses listed in the U.S. for audit inspections beginning next month, according to three people with knowledge of the situation.
The action comes after Beijing and Washington reached a historic audit agreement on Friday. The agreement lets U.S. authorities look into accounting firms in mainland China and Hong Kong. This could end a long-running battle that threatened to take over 200 Chinese companies off U.S. stock markets.
Related: Response to Alibaba’s request for a dual primary listing in Hong Kong
Alibaba has been alerted that it is among the first group of Chinese businesses whose audits would be scrutinised in Hong Kong by the U.S. audit watchdog, the Public Company Accounting Oversight Board (PCAOB). According to sources cited by Reuters, Alibaba’s audits will be inspected by PCAOB.
China’s biggest e-commerce company’s accounting firm, PwC, has also been told about the audit job inspection, according to sources who asked not to be named because they couldn’t talk about it publicly.
Alibaba didn’t respond to a request for comment, and a PwC representative said that it’s against company policy to talk about clients.
A spokesman for the PCAOB stated that the board does not comment on inspections. When asked for comment, the China Securities Regulatory Commission (CSRC) did not respond right away.
After the Reuters article, Alibaba’s U.S.-listed shares dropped over 3% at the market close on Tuesday, after gaining around 1% in pre-market trading. In Wednesday morning trading, its Hong Kong shares fell more than 3%, while IT heavyweights listed in the city fell over 2%.
Since more than a decade ago, U.S. officials have wanted access to audit documents of Chinese businesses listed in the U.S., but Beijing has been reluctant to let U.S. regulators look at its accounting firms, citing national security concerns.
Related: Alibaba and Tencent have been fined for failing to disclose information.
Alibaba, which went public in New York in 2014 in the biggest IPO in history, is the most valuable Chinese company listed in the United States as of Tuesday, with a market value of $248 billion.
No distinct treatment
The Public Company Accounting Oversight Board (PCAOB) said on Friday that it had contacted the chosen businesses, but didn’t say who they were. It also said that its staff would be in Hong Kong by the middle of September to do the inspections.
According to the PCAOB, the regulator that oversees audits of U.S.-listed firms would choose organisations based on risk indicators, such as size and industry, and no company should anticipate special treatment.
couldn’t find out quickly how many and which Chinese companies were inspected by the U.S. in the first round.
In recent years, Alibaba, which was founded in 1999, has moved into rapidly rising industries such as cloud services and the Internet of Things. It also owns the Chinese digital mapping and navigation company AutoNavi Holdings Ltd.
It was added to the U.S. Securities and Exchange Commission’s (SEC) list of Chinese firms that might be delisted for failing to comply with audit standards in July.
There are now more than 160 Chinese businesses on the list, including e-commerce competitor JD.com (NASDAQ:JD.com) and electric car manufacturer Nio (NYSE:NIO) Inc.
Current U.S. regulations indicate that beginning in early 2024, Chinese enterprises that do not comply with audit working paper requirements will be prohibited from dealing in the United States.
Related: Alibaba has increased the number of shares it buys back to a record $25 billion.
Alibaba stated, days before being listed on the SEC’s delisting radar, that it wanted to add a primary listing in Hong Kong to its New York presence, targeting mainland Chinese investors.
The IT giant, which has had a secondary listing on the Hong Kong exchange since 2019, expects the primary listing to be finished by the end of 2022.
