3 Acme Inc a multinational company based in the United States has a large

3 acme inc a multinational company based in the

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3- Acme, Inc., a multinational company based in the United States, has a large subsidiary located in Beijing, China. Acme is audited by an international accounting firm headquartered in the United States; its subsidiary is audited by the Chinese affiliateof that firm. Under U.S. auditing standards, what responsibilities, if any, does Acme’s U.S. audit firm have to supervise or oversee the audit of the Chinese subsidiary? Would these responsibilities be different under International Standards of Auditing? This scenario is similar to that of D&T Shanghai auditing Longtop Financial Technologies. Deloitte Touche Tohmatsu CPA Ltd. Operates worldwide but has a Chinese affiliate (D & T Shanghai) that is allowed to audit Chinese companies in mainland China. Chinese officials have blocked any outside, non-domestic, auditing firms or accounting standard setting entities from inspecting mainland Chinese firms because they say it their firms are “adequate” (Knapp, 2018, p.489). While Deloitte had given Lontop a clean bill of health for the past six years, they wrote a letter on the seventh year that stated they would no longer be the audit firm for Longtop. Even though Deloitte thought they could rely on the bank branches for accurate numbers, they did not anticipate that the bankers could be in on the fraudulent activity. The PCAOB requires that there must be inspections for accounting firms that audit companies whose securities trade in the United States, but since China refused, it has caused a standoff (Norris, 2011).
Acme’s U.S. audit firm should try its best to oversee standardization of its subsidiary in China but can only go so far if the Chinese government is blocking the auditors from doing their job correctly. This could mean that subsidiaries in countries, like China, may need to be considered carefully in the future. GAAS and IAS are similar in its foundation for wanting financial reporting standardization, but ISA maintains that an auditor, when specifically auditing a foreign subsidiary, must take full responsibility even though they might have used other auditorinformation for part of the audit, where PCAOB standards give the auditor the option to not mention the use of other auditors or clearly mention the division of responsibilities (Sapkota, 2017). 4- What alternative strategies or approaches could U.S. regulatory agencies consider invoking to ensure that the audits of non-U.S. companies with securities traded on U.S. markets are adequate?The PCAOB should spearhead the rules and regulations that can penetrate markets, like China, to ensure standardization. As Michael Knapp notes, James Doty, the chairman of the PCAOB, deflected much of the criticism of the agency over the Big Four accounting firms and maintained that international accounting firms need to take control over their international subsidiaries (2018, p.489). According to the PCAOB Standard-Setting Process, these standard-setting activities include identifying current or emerging audit issues, creating the research agenda, and then working on those standard-setting projects (2019). It would be beneficial for

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