China ordered state-owned enterprises and domestically-listed companies to ramp up security checks when hiring accounting firms, in Beijing’s latest move to ensure data security amid tensions with the US.
(Bloomberg) — China ordered state-owned enterprises and domestically-listed companies to ramp up security checks when hiring accounting firms, in Beijing’s latest move to ensure data security amid tensions with the US.
SOEs and listed firms should include specific clauses clarifying the responsibilities and requirements for information security protection in their contract to appoint auditors, according to rules jointly published by China’s Ministry of Finance, the SOE watchdog and the securities regulator on Thursday.
They must also strengthen the management of confidential and sensitive information when providing documents to the accounting firms to “effectively prevent” the risk of leaking, according to the rules, which came into force immediately. The auditors are required to fulfill the obligations, and process the data in accordance with the contracts, laws and regulations.
The rules underline Beijing’s lingering concerns about data security even after a landmark deal was reached to allow US audit inspections on hundreds of Chinese firms listed in New York. The MOF and other government entities earlier this year urged some SOEs to phase out using the four biggest international accounting firms, Bloomberg has reported, a sign of continued decoupling in sensitive areas such as advanced technology.
READ: China Urges SOEs to Drop Big Four Auditors on Data Risk (3)
Under the new regulation, the fiscal authorities may issue warning letters to accounting firms should they be found in violation, and ask them to rectify wrongdoings and provide regular reports or public explanations. SOEs will be named and shamed, or ordered to change their auditors if breaches are found.
SOEs can generally hire the same accountant for no more than eight straight years, with a two-year extension allowed in some cases, according to the rules.
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