US Holding Foreign Companies Accountable Act: does it solve the problems around accountability?
Created on:2024-01-03 20:03 PV:465
By Yuanyuan Lu & Zhihui Li & Yihuai (Edward) Wang & Jingchen Zhao | Article | 16 Tsinghua China L. Rev. 77 (2023)   |   Download Full Article PDF


The accuracy and reliability of companies’ financial statements can be influenced when foreign companies are cross-listed in different countries’ capital markets. If a foreign company listed in the US capital market does not provide its complete auditing documents and other financial information to the US federal government as required under the US security regulatory standard, it may cause big trouble to both the US federal government and its investors. Neither the US Securities and Exchange Commission nor the US federal government’s audit watchdog, the Public Company Accounting Oversight Board, are able to inspect the auditing and financial statements produced by audit firms based in China, making it impossible for them to determine whether the financial statements provided to them reflect the true financial positions of these cross-listed companies. Therefore, the US federal government passed a new law- Holding Foreign Companies Accountable Act on December 18, 2020, aiming to protect the US investment market and its investors. The article aims to offer a detailed discussion from a theoretical perspective of the goals of the HFCA Act and an analytical comparison between the accountability requirement used in common law jurisdictions and the Wenze (问责) system that has been introduced to develop the Chinese legal system. Through this comparison, we will examine the current true obstacles restricting the US government’s access to the accounting and auditing information of the Chinese listed companies in the US. Additionally, we will also discuss the regulatory conflict that already existed before the HFCA Act, between the Chinese regulators’ need to safeguard their sovereignty and the US government’s need to protect its capital market investors. This paper will also highlight several important issues in US law related to promoting more accountable Chinese companies listed in the US and provide some suggestions for the legislative directions in the future.

Key words: Holding Foreign Companies Accountable Act, Accountability, Wenze System, Accounting and Auditing Information