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EHang Told It Must Comply with U.S. Accounting Rules for Public Companies

Less than a week after EHang’s filing of a 20F annual report statement for the 2021 financial year, the U.S. Securities and Exchange Commission (SEC) has notified the Chinese eVTOL aircraft developer that it has been flagged for accounting procedures scrutiny under the Holding Foreign Companies Accountable Act (HFCAA). The notice, served by the federal regulator on May 4, effectively puts EHang on notice that it needs to use an accountancy firm that meets U.S. requirements for transparency.

The company completed an initial public offering on Wall Street back in December 2019. The HFCAA legislation made it to the U.S. statute books in December 2020, toward the end of the Trump Administration. As an amendment to the Sarbanes-Oxley Act, its stated purpose was to require U.S. public companies to declare and prove that they are not owned or controlled by the Chinese government.

In a May 5 statement, EHang acknowledged the SEC’s determination that it had “engaged an independent registered public accounting firm whose working paper cannot be inspected or investigated completely by the Public Company Accounting Oversight Board of the U.S. to issue the audit report for the company’s financial statements for the fiscal year ended December 31, 2021.” The Guangzhou-based company said that it is “actively exploring possible solutions to best protect the interest of its stakeholders” and that it will “continue to comply with applicable laws and regulations in both China and the U.S. and strive to maintain its listing on the Nasdaq stock market.”

Under the terms of the HFCAA, public companies failing to comply with its requirements for three consecutive years can have their shares suspended from trading on U.S. stock markets.