Chinese Companies and the New $25 Million Nasdaq IPO Threshold: How to Plan Your PCAOB Audit Under Tighter Rules

The Nasdaq $25 million IPO rule applies heightened initial listing standards to certain companies headquartered, incorporated, or principally administered in Mainland China, Hong Kong, or Macau.

This means offshore incorporation does not automatically remove a Chinese operating company from the rule.

A company may have a Cayman Islands parent and still fall within Nasdaq’s China-specific requirements if its business is principally administered in China. Nasdaq can consider factors such as the location of management, employees, assets, revenue, accounting records, and controlling shareholders when reaching that conclusion.

For a covered company completing a traditional IPO, the central requirement is clear. The company must conduct a firm-commitment offering that generates at least $25 million of gross proceeds.

That distinction matters.

A $25 million market capitalization does not satisfy the requirement. Neither does a $25 million enterprise value or a theoretical ability to raise that amount. The transaction itself must meet the applicable minimum offering requirement.

For Chinese issuers, the rule therefore changes the financing model at a fundamental level.

How the Nasdaq $25 Million IPO Rule Changes IPO Economics

Consider a Chinese company that previously planned a Nasdaq IPO with a $40 million pre-money valuation and a $10 million capital raise.

Under that structure, the company could build its shareholder dilution, use of proceeds, underwriting strategy, and investor discussions around a relatively modest offering.

The Nasdaq $25 million IPO rule changes that calculation.

If the company must instead raise $25 million while its valuation remains similar, existing shareholders face substantially greater dilution. Management may therefore need to justify a higher valuation or accept a much larger financing relative to the existing equity value.

The alternative is to delay the IPO until the business has grown enough to support the larger transaction.

This is not only a valuation issue. It is also an underwriting issue.

An investment bank cannot simply change a $10 million offering into a $25 million offering by increasing the number of shares shown on the prospectus cover. The bank needs sufficient investor demand to place the securities. A larger offering usually requires a broader and more credible investor base.

That places more pressure on the company’s operating history, financial reporting, governance, internal controls, and audit readiness.

Why Nasdaq Increased the Threshold

Nasdaq’s regulatory findings help explain the change.

From August 2022 through April 2025, nearly 70% of matters in which Nasdaq referred potential manipulation concerns to the SEC or FINRA involved Chinese emerging-market companies. During the same period, Chinese companies represented less than 10% of Nasdaq listings. Nasdaq also connected some of these concerns to smaller offerings, limited public float, and insufficient trading liquidity.

The $25 million requirement is therefore not an accounting rule. However, it has significant accounting and audit consequences.

A company seeking a larger public offering will normally face greater financial due diligence. Its revenue, related parties, VIE structure, cash flows, equity history, and accounting policies need to withstand scrutiny from auditors, securities counsel, investment bankers, the SEC, and ultimately investors.

Weak financial reporting can therefore become a transaction problem rather than simply an audit problem.

The CSRC Process Is Now Part of the IPO Critical Path

Chinese companies must also consider the PRC side of the transaction.

Since March 31, 2023, China has operated a filing-based overseas-listing regime administered by the China Securities Regulatory Commission. The framework applies to both direct and qualifying indirect overseas offerings by domestic Chinese companies.

Market participants often refer to this process as obtaining “CSRC approval.” Technically, the current regime is filing-based rather than a traditional merit-based approval system.

That technical distinction does not reduce its practical significance.

For a company planning a U.S. IPO, the CSRC process can still become a critical part of the transaction timetable.

As of July 2026, more than 50 Mainland Chinese companies were reportedly waiting to move forward with proposed U.S. offerings through the Chinese regulatory process. At the same time, only two Mainland Chinese companies had completed U.S. debuts during the first half of 2026.

This creates a difficult planning question.

Should management wait for the CSRC process to finish before spending heavily on the PCAOB audit?

For many companies, the answer should be no.

Why the PCAOB Audit Should Run in Parallel With the CSRC Process

Waiting until the CSRC workstream finishes may appear conservative. In practice, it can create another major delay.

A first-time PCAOB audit of a China-based issuer can involve several legal entities and jurisdictions. The listed company may sit in the Cayman Islands. A Hong Kong company may serve as an intermediate holding entity. A wholly foreign-owned enterprise may operate in Mainland China, while a VIE conducts the underlying business.

The accounting records may also require conversion or adjustment before they support an SEC filing.

The auditor first needs to understand that structure. The engagement team must identify the entities included in the group, understand the ownership chain, assess related parties, establish materiality, evaluate significant risks, and determine where audit procedures need to occur.

Where VIE arrangements exist, management must also explain why the operating entity belongs in the consolidated financial statements.

These activities can begin while the CSRC process continues.

A practical audit timetable may look broadly as follows:

The exact timetable depends on audit readiness.

A company with clean accounting records and straightforward operations can move more efficiently. A company with incomplete books, unresolved VIE accounting, significant related-party activity, or major US GAAP conversion issues will need more time.

The important point is simple: audit time becomes difficult to recover once it is lost.

HFCAA Remains Relevant, but the Current Position Needs to Be Understood Correctly

The Holding Foreign Companies Accountable Act remains an important consideration for Chinese U.S. listings. However, companies should not interpret it as an automatic prohibition on using the U.S. capital markets.

The core HFCAA concern is whether the PCAOB can inspect and investigate completely the registered accounting firm responsible for the issuer’s audit.

The PCAOB previously made determinations concerning firms in Mainland China and Hong Kong. It later vacated those determinations after obtaining the required inspection and investigation access. The PCAOB currently states that no HFCAA Board determinations are in effect.

That means a company does not automatically face HFCAA consequences merely because its principal operations are in China.

The framework nevertheless remains active.

If circumstances change and the PCAOB again concludes that it cannot completely inspect or investigate firms in a jurisdiction, affected issuers could again face consequences under the HFCAA regime.

What This Means for Auditor Selection

Management should therefore look beyond the question of whether an audit firm appears in the PCAOB registration database.

The company and its advisors also need to understand who will perform the significant audit work. They should know where the workpapers will be maintained and how the lead auditor will obtain access to the underlying evidence.

This becomes particularly important when the lead auditor sits outside China but other auditors or professionals perform procedures inside Mainland China.

The audit model needs to support genuine lead-auditor involvement.

HFCAA planning is therefore part of the audit structure. It should not become merely another risk-factor paragraph in the Form F-1.

Why VIE Structures Create Additional PCAOB Audit Complexity

Variable Interest Entity structures create another layer of complexity for many Chinese companies entering overseas capital markets.

In a typical arrangement, U.S. investors purchase shares in an offshore holding company. They may not directly own equity in the Chinese operating business.

Instead, a series of contractual agreements may give another entity economic rights or control over the operating company. Management then evaluates whether those arrangements support consolidation under the applicable financial reporting framework.

The auditor must test that conclusion.

Consolidation and Contractual Control

The audit team first needs to understand how the structure actually operates.

An organization chart is not enough.

The auditor may need to examine business cooperation agreements, equity pledge agreements, powers of attorney, option arrangements, and other contracts that support management’s consolidation analysis.

The team also needs to understand who makes the key decisions and who receives the economic benefits of the business.

If the accounting conclusion depends on contractual control rather than direct equity ownership, those contractual rights become important audit evidence.

Legal Enforceability and Audit Evidence

PRC legal counsel may also play an important role.

Management may rely on counsel when assessing the validity or enforceability of VIE agreements. The auditor then needs to understand how that legal analysis supports management’s accounting conclusion.

Timing matters.

If the company discovers late in the audit that an important agreement was not executed correctly, the problem may extend beyond the financial statements. It can also affect the corporate structure and the Form F-1 disclosures.

VIE accounting should therefore be addressed early in the engagement rather than during final audit completion.

Cash Movement Through the VIE Structure Requires Particular Attention

Cash movement is one area where the accounting records, audit procedures, and SEC disclosures must align closely.

A Chinese group may move funds among an offshore parent, Hong Kong subsidiaries, Mainland China subsidiaries, a WFOE, the VIE, and related parties.

Each transfer needs an economic explanation.

Some transfers may represent capital contributions. Others may arise from service arrangements, intercompany loans, management fees, expense reimbursements, or operating settlements.

The auditor needs to reconcile these transactions to bank records and the general ledger. The team also needs to understand the purpose of the transfers and whether the accounting treatment is appropriate.

The Form F-1 may separately describe how cash moves between the offshore listed company and the Chinese operations.

If that narrative conflicts with the accounting records, management may face additional SEC comments.

For this reason, companies should prepare a clear schedule of VIE and intercompany cash movements before the audit reaches completion.

The Underlying Audit Evidence Still Comes From China

An offshore holding structure does not change where the economic activity occurs.

If the customers, suppliers, employees, inventory, and operating assets sit in Mainland China, much of the audit evidence will also originate there.

The auditor still needs sufficient appropriate evidence over the significant financial statement accounts.

Revenue deserves particular attention.

A company may present rapid revenue growth as a central part of its IPO investment story. That same growth can become a significant audit risk.

The audit team may need to trace revenue from the accounting records to customer contracts, invoices, delivery evidence, cash receipts, and other supporting documentation.

If contracts exist only in Chinese, management should expect the audit process to involve translation and access to the underlying original documents.

A summarized English spreadsheet cannot always replace the underlying evidence.

The same principle applies to bank accounts, receivables, supplier balances, inventory, payroll, taxes, and fixed assets.

The listed company may be incorporated offshore, but the audit still follows the economic activity.

Why the Nasdaq $25 Million IPO Rule Makes Early Auditor Selection More Important

The Nasdaq $25 million IPO rule increases the financial significance of each transaction.

An unresolved accounting issue discovered before a small private financing may cause inconvenience. The same issue discovered shortly before a $25 million public offering can affect valuation, underwriting, SEC disclosures, and investor confidence.

The PCAOB auditor should therefore be selected before management commits to an aggressive IPO timetable.

PCAOB registration is only the starting point.

The engagement team should understand SEC reporting and first-time issuer audits. It should also have the ability to handle cross-border evidence, VIE structures, related parties, group audits, and the financial reporting framework used in the registration statement.

Partner capacity also matters.

The engagement partner needs sufficient time to review significant areas of the audit. The engagement-quality reviewer must also complete the required review before the audit report can be released.

A company that engages a qualified firm too late may still miss its timetable.

For this reason, the lowest audit fee does not always represent the lowest transaction cost. An IPO delayed because the audit cannot finish on time can cost far more than the difference between competing audit proposals.

Can an India-Based PCAOB Firm Audit a Company Operating Primarily in China?

An India-based PCAOB-registered firm can serve as auditor of an issuer whose principal operations are in China, provided the engagement satisfies PCAOB requirements.

The location of the audit firm’s head office does not by itself determine audit quality.

What matters is what the lead auditor actually does.

The Lead Auditor Must Genuinely Lead the Audit

The firm signing the audit report must perform the responsibilities required of the lead auditor.

It needs meaningful involvement in planning and risk assessment. It also needs to determine the scope of significant audit areas and supervise other auditors where appropriate.

The lead firm cannot function merely as a signing firm while another firm performs substantially all meaningful audit work.

It must obtain sufficient appropriate evidence to support its opinion.

This distinction is particularly important in China-related engagements. The lead auditor needs access to the records and workpapers supporting significant areas of the financial statements.

Where an India-Based Model Can Create Cost Efficiency

An India-based PCAOB firm can offer a different operating model from a large U.S. or global accounting network.

India has a deep accounting talent pool with experience in IFRS, US GAAP, consolidation, financial reporting, and international group structures. The operating cost base can also be materially different.

That can make the overall engagement more cost-effective.

However, the savings must come from an efficient delivery model. They cannot come from reducing the audit procedures required under PCAOB standards.

For a China-based issuer, the India-based auditor still needs access to management and underlying records. It must also supervise participating auditors properly and maintain sufficient documentation.

When structured correctly, the model can combine cross-border cost efficiency with full PCAOB responsibility.

Companies evaluating PCAOB firms may also find our analysis of PCAOB and AICPA audit standards useful when comparing public-company audit requirements.

Related Parties Can Become a Major First-Time Audit Issue

Related-party identification often creates more work than management expects.

Founder-led companies may have developed over many years through a network of businesses. Founders, directors, family members, or senior managers may own interests in other companies that transact with the issuer.

Those relationships need careful review in a public-company audit.

The audit team may identify loans, guarantees, service agreements, property arrangements, purchases, sales, or expense reimbursements involving related entities.

Management should therefore prepare a complete related-party analysis before substantive fieldwork begins.

This should go beyond transactions already coded as related parties in the general ledger.

The company needs to identify the underlying people and entities that could meet the applicable definition of a related party. The audit team can then compare that population with the accounting records and other evidence.

Late discoveries create additional work.

New relationships may require additional confirmations, disclosure changes, or revised accounting. They can also raise questions about whether earlier audit procedures covered the complete population.

Early identification reduces that risk.

US GAAP or IFRS Readiness Should Be Resolved Early

Chinese IPO candidates also need to settle the financial reporting framework before the audit accelerates.

An eligible foreign private issuer may use IFRS as issued by the IASB without reconciling those financial statements to US GAAP. Other issuers may need to prepare their financial statements under US GAAP.

This decision affects much more than presentation.

A company preparing local statutory accounts cannot assume that it can simply change the financial statement format for the Form F-1.

Revenue recognition, leases, financial instruments, equity transactions, stock-based compensation, consolidation, impairment, and business combinations may require additional accounting analysis.

The same is true for disclosures.

When management completes the conversion during audit fieldwork, both teams lose efficiency. The financial statements keep changing while the audit procedures are already underway.

The auditor may then need to revisit work performed on earlier versions of the accounts.

The better approach is to identify major conversion matters during audit readiness and resolve them before the busiest fieldwork period begins.

Going Concern Analysis Requires Care When the IPO Is the Financing Plan

A company planning a $25 million offering may still have limited liquidity before the IPO closes.

Management may expect the IPO proceeds to finance working capital, expansion, research, acquisitions, or operating losses.

The audit analysis cannot automatically assume that the IPO will happen.

Management needs to evaluate the company’s current liquidity and forecast cash requirements. It should also assess financing arrangements that already exist independently of the proposed IPO.

This distinction matters because an expected public offering remains uncertain until it closes.

If the company cannot support its operations without the IPO proceeds, going concern may become a significant audit and disclosure issue.

Identifying this issue early gives management more options.

The company may have time to obtain bridge financing, reduce expenditure, restructure commitments, or develop another plan. Discovering the same problem during audit completion provides much less room to respond.

What Companies Already in the CSRC Queue Should Reassess

The Nasdaq $25 million IPO rule creates a particularly important decision for companies that entered the CSRC process under an earlier IPO plan.

A company that originally intended to raise $10 million or $15 million should reassess the transaction rather than assume that it can simply increase the offering size.

Management and the investment bank first need to determine whether the business can support at least a $25 million raise.

If investor demand and valuation support the larger transaction, the company can redesign the offering around the new requirement.

That may change the capitalization structure, use of proceeds, dilution, valuation, and investor marketing strategy.

If the company cannot yet support a $25 million transaction, delaying the IPO may be more rational.

Additional revenue growth, profitability, operating history, governance improvements, or stronger financial reporting may allow the company to return later with a more credible financing plan.

A third possibility is becoming increasingly relevant: changing the listing venue.

Hong Kong Is a Genuine Alternative for Chinese Companies

Any realistic discussion of China-to-U.S. listings in 2026 should acknowledge the renewed strength of Hong Kong.

Chinese companies are increasingly looking to Hong Kong and domestic markets as U.S. and Chinese regulatory requirements become more demanding. Hong Kong’s IPO market has also seen strong activity during 2026.

This does not mean Nasdaq has lost its strategic value.

Nasdaq can still offer global visibility, access to U.S. capital, strong technology and growth-company comparables, and exposure to a broad institutional investor base.

Hong Kong offers a different set of advantages. Asian investors may understand certain China-focused business models more naturally. Companies may also value the geographic proximity and regional investor base.

The Nasdaq $25 million IPO rule makes this comparison more important.

A company capable of raising $25 million or more with credible investor demand may still have strong reasons to choose Nasdaq.

A smaller company that built its entire IPO plan around a $7 million or $10 million raise may reach a different conclusion.

That decision should come early.

Completing several years of PCAOB audits, preparing an F-1, restructuring the group, and incurring substantial underwriting and legal costs before questioning the transaction economics can create significant avoidable expense.

The New Rule May Raise the Quality of the Remaining Nasdaq Pipeline

The immediate effect of the higher minimum offering requirement will likely be fewer small Chinese companies attempting Nasdaq IPOs.

That does not mean Chinese listings will disappear.

Instead, the remaining candidates may increasingly consist of larger businesses with stronger financial reporting and more credible capital requirements.

This changes the central question for management.

The question is no longer simply whether the company can technically qualify for Nasdaq.

The more important question is whether the business is ready to raise at least $25 million from public investors and then operate as a U.S. reporting company.

Those are different standards.

A successful IPO does not end the financial reporting process. It begins the public-company reporting cycle.

Management will need to produce timely financial statements, support annual audits and interim reviews, respond to SEC reporting requirements, maintain appropriate governance, and manage public-company disclosures.

Audit readiness before the IPO is therefore closely connected to public-company readiness after the IPO.

The Bottom Line: Build the Audit Architecture Before Fixing the IPO Date

The Nasdaq $25 million IPO rule should not be considered in isolation.

For Chinese companies, the transaction now sits at the intersection of Nasdaq listing standards, the CSRC overseas-listing framework, SEC registration requirements, HFCAA considerations, VIE structures, PCAOB auditing standards, cross-border evidence, and underwriting economics.

Each area affects the others.

The offering size affects valuation and investor demand. The VIE structure affects accounting and SEC disclosure. The location of operations affects how the audit is performed. The participation of other auditors affects the lead auditor’s responsibilities. CSRC timing affects the broader transaction calendar.

The PCAOB audit sits in the middle of these workstreams because the audited financial statements support the registration statement itself.

For companies that remain committed to Nasdaq, tighter regulation should therefore not lead to a compressed audit timetable.

It should lead to an earlier audit start.

Audit Readiness Before Transaction Execution

A Chinese issuer should ideally understand its financial reporting framework, VIE accounting, related parties, historical audit gaps, and cross-border evidence requirements before management fixes an aggressive IPO date.

That early work can reveal whether the proposed timetable is realistic.

It can also identify problems while management still has time to solve them.

Shah Teelani & Associates is a PCAOB-registered audit firm (Reg. No. 7161) working with U.S. public companies and international issuers preparing to access the U.S. capital markets.

Our India-based audit platform allows us to structure cross-border PCAOB engagements efficiently while maintaining the evidence, supervision, documentation, engagement-partner involvement, and quality-review requirements applicable to a public-company audit.

For China-based companies and IPO advisors, an early audit-readiness assessment can identify problems involving historical financial statements, VIE consolidation, related parties, US GAAP or IFRS conversion, audit locations, and cross-border audit evidence before those matters begin controlling the IPO timetable.

If your company is currently progressing through the CSRC process or evaluating whether a $25 million Nasdaq offering remains commercially viable, the PCAOB audit should be assessed alongside the financing strategy — not after the transaction structure has already been fixed.