China Proposes Additional Cybersecurity Checks for Auditors in National Security Matters

November 15, 2023

China’s finance ministry has introduced a proposal suggesting that auditors should undergo or conduct extra cybersecurity checks, especially when their work involves national security considerations.

Guidelines for Managing Data Related to Chinese Firms

The draft of these new measures, made public on Friday, also outlines how accounting firms should handle and manage data related to Chinese companies.

Evolving Cybersecurity Policies

China’s cybersecurity authority has been steadily developing policies over the past two years to dictate how all businesses, including auditors, should handle and implement security assessments and checks.

Target Audience – Domestic and Cross-Border Auditors

These new measures specifically target auditors hired by domestic companies or those involved in cross-border auditing work. The draft rules designate the chief partner of an auditing firm as the individual responsible for data security.

Public Consultation Period

The draft is currently open for public consultation until December 11, providing an opportunity for stakeholders and the public to share their views and feedback.

Silence from Global Auditing Giants

The world’s four largest auditing firms—PricewaterhouseCoopers, Deloitte, KPMG, and EY—have not yet responded to requests for comments regarding these proposed cybersecurity measures.

Growing Concerns on Data Security

Recent years have seen Chinese authorities increasing scrutiny of auditors due to mounting concerns about data security. Regulations issued in May already mandated state-owned companies and listed enterprises to strengthen checks on accountants’ ability to manage information security.

Limiting Western Auditor Influence

Beijing has taken steps to reduce the influence of Western auditors, with reports suggesting that some state-owned firms were instructed to stop using the big four global accounting firms.

Resolving U.S.-China Audit Disputes

Last year, the United States and China reached an agreement to settle a long-standing dispute over auditing compliance for U.S.-listed Chinese firms. The deal involved conducting audit inspections in Hong Kong, as China had reservations about granting full access to U.S. regulators.

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