EXCLUSIVE: US Regulators To Scrutinize Audits Of Alibaba, JD.com And Other Chinese Companies

HONG KONG, Aug 31 (Reuters) – U.S. regulators have singled out large e-commerce firm Alibaba Group Holding Ltd. (9988.HK) and JD.com Inc. (9618.HK) among other U.S.-listed Chinese companies for audit inspection starting next month, people with knowledge of the matter said.

The selection follows a landmark audit agreement between Beijing and Washington on Friday that allows US regulators to examine accounting firms in mainland China and Hong Kong, which could end a long-running dispute that threatened to expel more than 200 Chinese companies on US stock exchanges. read more

The tech duo along with Yum China Holdings Inc. (9987.HK) – owner of KFC, Taco Bell and Pizza Hut restaurants in China – has been notified that it is among the first batch of Chinese companies whose audits will be inspected in Hong Kong by the US audit watchdog, the Public Company Accounting Oversight Board (PCAOB), the people told Reuters, declining to be identified due to confidentiality restrictions.

Alibaba, JD.com and Yum China’s respective accounting firms – PwC, Deloitte and KPMG – have also been notified of the inspection, the people added.

Alibaba, JD.com, Yum China and the China Securities Regulatory Commission did not respond to requests for comment.

Spokesmen for PwC and Deloitte said it was company policy not to comment on client matters. KPMG declined to comment on the matter.

A PCAOB spokesman said Tuesday that the board had no comment on the inspections. The watchdog could not be reached for comment outside of US business hours on Wednesday.

Alibaba’s US-listed shares closed down nearly 3% on Tuesday after the Reuters report, after rising about 1% in premarket trading. Its Hong Kong shares trimmed losses to almost 1% on Wednesday afternoon, after falling more than 3% in the morning.

US regulators have for more than a decade required access to audit documents of US-listed Chinese companies, but Chinese authorities have been reluctant to allow US regulators to do so. inspect accounting firms in China, citing national security concerns.

Alibaba, which went public in New York in 2014 in what was then the largest listing in history, is the most valuable Chinese company listed in the United States with a market value of $248 billion as of Tuesday. .

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The PCAOB said on Friday that it had notified the selected companies, without naming them, and that it expects its officers to land in Hong Kong, where the inspections will take place, in mid-September.

The regulator, which oversees audits of US-listed companies, said it selects companies based on risk factors, such as size and industry, and that no company can expect special treatment. read more

Reuters could not immediately determine how many and which other Chinese companies were in the first batch of US inspections.

Alibaba was founded in 1999 with e-commerce as its core business. It has expanded into fast-growing sectors such as cloud services and the Internet of Things in recent years, and also owns AutoNavi, a large Chinese digital navigation and mapping company.

In July, Alibaba was added to the US Securities and Exchange Commission’s (SEC) list of Chinese companies that could be removed if they failed to meet audit requirements. read more

The list now has more than 160 Chinese companies, including JD.com, Yum China and electric vehicle maker Nio Inc.

Current US rules stipulate that Chinese companies that fail to comply with audit working paper requests will be suspended from trade in the United States in early 2024.

Days before being added to the SEC’s delisting watch list, Alibaba said it planned to add a main Hong Kong listing to its New York presence, targeting investors in mainland China. read more

Already listed on the Hong Kong stock exchange with a secondary listing since 2019, the tech giant said it expects the primary listing to be completed by the end of 2022.

Yum China said in mid-August that it had also applied for a primary listing in the city, as it seeks to sidestep the risk of New York delisting. read more

The company expects the conversion from its current secondary to primary listing status to be completed in October, subject to shareholder approval.

Reporting by Julie Zhu in Hong Kong; Additional reporting by Katanga Johnson in Washington; Edited by Sumeet Chatterjee and Christopher Cushing

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