Chinese regulators announced Friday that they signed a memorandum of understanding with their counterparts from the United States that would give American authorities access to records from Chinese audit firms. The MOU is a vital step in the cross-border enforcement cooperation between the United States and China. It was signed by the Ministry of Finance, China Securities Regulatory Commission, and the US Public Company Accounting Oversight Board. The agreement leads for cross-border enforcement assistance between the two countries.

The Enforcement Cooperation deal came after several Chinese companies listed in the United States faced question regarding their accounting practices. Regulators from the United States have been probing US-traded Chinese firms for more than two years. The Securities and Exchange Commission filed cases of fraud against dozens of Chinese companies.

The MOU leads to the creation of a cooperative framework between the parties for the production and exchange of audit documents needed for the investigation in the jurisdictions of both countries. The agreement doesn’t cover the routine inspections of audit companies.

Chinese companies have been able to launch IPOs in the United States but there have been fewer who tried over the last year. US investors are worried about offerings from China. Beijing has been reluctant to allow audit inspections because it sees it as a violation of its sovereign rights.

The SEC has been unable to subpoena documents from Chinese auditors because they claim that handing over documents would violate state secrets regulations. The PCAOB is in charge of audit inspections of firms that audit companies listed in the US. It has been denied access to China-based companies.

Chinese regulators claimed that the MOF and CSRC have been cracking down on violations and maintaining market integrity. Both the CSRC and MOF have been engaged in cross-border cooperation with foreign regulators in order to fulfill its commitments to investors.

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