Defining Issues | April 2020

SEC and PCAOB expect risk disclosures for operations in emerging markets

The SEC and PCAOB have issued a joint statement urging companies to disclose financial reporting and other risks associated with operations in emerging markets. The statement also addresses both agencies’ continued focus on the importance of high quality financial information in China and other emerging markets.


  • Public companies, including registered investment companies and advisers 

Relevant dates

  • Effective immediately

Key impacts

In recent years and for the foreseeable future, the SEC and PCAOB have been constrained from providing regulatory oversight and enforcement of non-US companies and their management in emerging markets, including China.

Because of this, the SEC and PCAOB continue to stress the importance of providing high quality, reliable audited financial information and risk disclosures for companies based in, or with significant exposure to, emerging markets.

In a joint statement, leaders of both agencies summarized the risks and related considerations to issuers, auditors, index providers and investors that are associated with these emerging markets.

This joint statement follows other statements made by the SEC and PCAOB, expressing their expectation that companies make these disclosures.

  • Companies are expected to make prominent, plain-English and tailored disclosures over the following:
    • The risks and uncertainties from having operations in emerging markets, including those related to the sufficiency of controls, processes and personnel to address accounting and financial reporting issues
    • Financial reporting and other disclosure risks, such as those resulting from less robust regulatory, accounting, auditing or auditor oversight requirements than required in US markets  
    • Jurisdictional limitations and other obstacles inhibiting the ability of US authorities, such as the SEC and Department of Justice, to pursue enforcement actions against ‘bad actors’ that are non-US companies and non-US persons
    • Limitations on shareholder rights and recourse in emerging markets
    • The potential risks related to the PCAOB’s lack of access to the work of PCAOB-registered accounting firms in China.
  • Investment advisers and funds that invest (or consider investing) in emerging markets should disclose the risks related to the quality or availability of the financial information of such investments, the impact of any potential market closures, and other related risks.
  • Investors should understand and consider the risks of investments in index funds tracking an emerging market index. These index funds generally would not weigh individual securities on the basis of investor protection limitations or differences in the quality of financial reporting and available oversight mechanisms.



Subscribe to our newsletter

Receive timely updates on accounting and financial reporting topics from KPMG.