There are no good options left for the PCAOB. Successful short seller attacks indicate that fraud and auditing failures continue to be a problem in China. The only real tool left in the PCAOB toolbox is to deregister the accounting firms that it cannot inspect. But this option would quickly lead to the delisting of Chinese companies from US markets, including companies like Alibaba and Baidu.
There are some tough decisions ahead for the PCAOB's Chairman. That is, if there were a PCAOB chairman. James Doty’s term as chairman expired on October 31, and SEC chairman Mary Jo White has not said whether Doty will be reappointed or replaced. Doty is popular with investors for his hardline positions on auditing but those same positions make him deeply unpopular with accounting firms and the business community. The latter have been supporting a Republican staffer to replace Doty, a Democrat, for this theoretically non-partisan job. There is precedent for a PCAOB chairman remaining in place after his term expires – Doty’s predecessor was in this status for some time. I think it is unlikely that Doty takes any strong action before he is reconfirmed.
While this horsetrading over the chairmanship is going on, PCAOB staff aren't likely to be throwing out crazy ideas. With that in mind, it's probably best that we get as many possible solutions on the table for the Board's next move. No matter how bad or stupid they might seem, it's the least we can do. Think of it as public service.
1. Pull the registrations of Chinese firms — The obvious downside, as Gillis mentioned, is that a bunch of companies get delisted. Money will be lost. Lawsuits will fly. Heads will roll. The US Chamber of Commerce will call for the abolishment of the PCAOB in the name of FREE MARKETS. When asked by a reporter what he thinks of the situation, Donald Trump will bark, "CHINA IS KILLING US!" This is my favorite option because it results in the most chaos.
4. Call in Kenny G.
5. Send in PCAOB personnel disguised as filmmakers scouting locations for a science fiction movie to conduct covert inspections. "This is best bad idea we have, sir. By far."
What else you people got? This is a helluva conundrum and your country needs you.