U.S., China in pact on audit observation, not inspection

Oct 9 (Reuters) - In a step toward resolving U.S.-Chinatensions over corporate auditing, U.S. regulators said onTuesday they have finalized an agreement to let them beginobserving corporate audits in China.

The pact, announced by the Public Company AccountingOversight Board, an auditing watchdog based in Washington, D.C.,fell short of the full access the board wants to inspect andexamine Chinese audits of U.S.-listed corporations.

"The PCAOB and Chinese authorities have signed an agreementto proceed with observational visits. We expect them to takeplace within the next couple of months," said PCAOB spokeswomanColleen Brennan.

U.S. regulators want access in China to inspect auditcompanies that check the books of China-based companies listedon U.S. exchanges, but China has resisted, citing sovereigntyconcerns.

PCAOB Chairman James Doty had repeatedly said that a planfor such inspections had to be in place by the end of this year.

In the past 18 months, accounting issues have arisen over anumber of U.S.-listed Chinese companies, leading some companiesto de-list from U.S. exchanges.

Paul Gillis, a professor at Peking University's GuanghuaSchool of Management, called Tuesday's deal "a face saving wayto kick the can down the road," arguing the PCAOB might decideto extend its year-end deadline for a full inspection deal.

(Reporting by Nanette Byrnes; Editing by Kevin Drawbaugh)

((nanette.byrnes@thomsonreuters.com)(347 844 1054,@nanettebyrnes))