How to Draft 10-K and 10-Q Reports for a US-Listed China Company

The SEC’s 2025 enforcement focus on non-compliance with the Holding Foreign Companies Accountable Act (HFCAA) and the PCAOB’s continued on-site inspection regime in mainland China and Hong Kong has fundamentally altered the drafting calculus for 10-K and 10-Q reports by US-listed China companies. As of Q1 2026, the PCAOB has completed four consecutive annual inspection cycles in the PRC, but the SEC’s Division of Corporation Finance has issued over 40 comment letters specifically targeting VIE disclosures and variable interest entity financial statements since January 2025, according to SEC EDGAR filings. For a Chinese issuer listed on the NYSE or Nasdaq, the 10-K (annual report on Form 20-F) and 10-Q (quarterly report on Form 10-Q for domestic filers, or 6-K for foreign private issuers) are no longer mere compliance documents — they are the primary battleground for maintaining US listing status, avoiding delisting under the HFCAA, and satisfying both US GAAP and PRC GAAP reconciliation requirements. This article provides a regulatory-grounded, mechanics-first framework for drafting these reports, drawing on SEC rules, PCAOB standards, and the specific structural challenges of PRC-incorporated companies with Cayman Islands holding company structures.

The Structural Framework: VIE vs. Direct Equity Structures

The first drafting decision is not about content but about the legal entity structure disclosed. A US-listed China company must clearly delineate whether it operates through a direct equity ownership structure or a Variable Interest Entity (VIE) structure, as this determines the scope of consolidated financial statements and the risk disclosures required under SEC Regulation S-K Item 503(c) and Item 105.

For a VIE structure, the 10-K must include a detailed description of the contractual arrangements that allow the Cayman Islands holding company to control the PRC operating entity without direct equity ownership. This includes the set of exclusive service agreements, equity pledge agreements, call option agreements, and proxy agreements that together constitute the VIE control framework. The SEC’s December 2024 updated guidance explicitly requires that the financial statements of the VIE be consolidated with the holding company under ASC 810-10-25 (FASB Codification), and that the 10-K include a separate VIE schedule showing the assets, liabilities, and net income attributable to the VIE versus the holding company.

A 2025 SEC comment letter to a Beijing-based edtech issuer (SEC Filing, Jan 2025) demanded that the company disaggregate the VIE’s revenue from the holding company’s revenue by segment, and disclose the specific PRC regulatory approvals required to remit dividends from the VIE to the Cayman entity. The issuer was required to amend its 10-K within 60 days. For direct equity structures — where the Cayman entity holds equity directly in a Wholly Foreign-Owned Enterprise (WFOE) — the 10-K must confirm that no VIE arrangements exist, and that the WFOE holds the requisite business licenses under the PRC Foreign Investment Law (2020) and the Negative List (2024 version).

Financial Statement Preparation: US GAAP with PRC GAAP Reconciliation

The 10-K and 10-Q must present financial statements prepared in accordance with US GAAP (ASC 205-210), but for a PRC-incorporated operating entity, the underlying books are typically maintained under PRC GAAP (Ministry of Finance Accounting Standards for Business Enterprises, ASBE). The reconciliation between the two is not a simple mapping exercise; it requires a systematic adjustment process documented in the audit workpapers.

The auditor — which must be a PCAOB-registered firm with a current inspection rating — will require that the company prepare a US GAAP-to-PRC GAAP reconciliation schedule for each material line item. The most common adjustments involve revenue recognition (ASC 606 vs. PRC ASBE 14), lease accounting (ASC 842 vs. PRC ASBE 21), and impairment of long-lived assets (ASC 360 vs. PRC ASBE 8). For a typical China-based consumer internet company, the revenue recognition adjustment alone can shift reported revenue by 5-8% due to differences in the timing of variable consideration recognition under ASC 606-10-32-5.

The 10-K must include a Management’s Discussion and Analysis (MD&A) section that explains these adjustments in plain English (SEC Regulation S-K Item 303). The MD&A should quantify the impact of each material adjustment on net income and EBITDA, and disclose any changes in accounting policies or estimates that occurred during the fiscal year. For Q1 2026 filings, the SEC has flagged that any change in the VIE consolidation method — for example, moving from VIE to equity method accounting — must be disclosed in the 10-Q immediately, not deferred to the annual 10-K.

Risk Factor Drafting: HFCAA, Delisting, and PRC Regulatory Risk

The risk factor section of the 10-K is the most scrutinised by both the SEC and the PCAOB. Since the enactment of the HFCAA in 2020 and the subsequent PCAOB access agreement with the PRC in August 2022, the SEC has required that all China-based issuers include a specific risk factor titled “Risks Related to the Holding Foreign Companies Accountable Act and Potential Delisting.” This risk factor must disclose the issuer’s current PCAOB inspection status, the number of consecutive years it has been identified as a “Commission-Identified Issuer” under the HFCAA, and the specific steps taken to ensure PCAOB access to audit workpapers.

The SEC’s 2025 Staff Legal Bulletin No. 14R clarified that the risk factor must also address the potential for the PRC government to intervene in the VIE structure under the PRC Data Security Law (2021) and the Personal Information Protection Law (2021). A 2025 SEC filing from a Shanghai-based biotech issuer (SEC Filing, March 2025) was cited for failing to disclose that its VIE held patient genomic data, which triggered cross-border data transfer restrictions under the PRC Data Security Law Article 36. The issuer was required to amend its 10-K within 45 days and to include a new risk factor on data localisation requirements.

For the 10-Q, the risk factor section is typically incorporated by reference from the most recent 10-K, but any material change in risk profile — such as a new PRC regulatory action, a change in PCAOB inspection status, or a delisting notification from the exchange — must be disclosed in the 10-Q as a forward-looking risk update. The SEC’s Division of Corporation Finance has issued 12 comment letters in 2025 alone on the adequacy of risk factor updates in quarterly filings for China-based issuers.

Disclosure Controls and Internal Control Over Financial Reporting (ICFR)

The 10-K must include management’s assessment of the effectiveness of internal control over financial reporting (ICFR) under Section 404(a) of the Sarbanes-Oxley Act of 2002 (SOX). For a US-listed China company, this assessment is particularly challenging because the ICFR framework must encompass both the Cayman Islands holding company and the PRC operating entities, including any VIE.

The PCAOB Auditing Standard No. 2201 requires that the auditor issue an attestation report on the effectiveness of ICFR for accelerated filers (public float above USD 75 million). For a China-based issuer, the auditor must test controls over the consolidation process, intercompany transactions, and the VIE consolidation model. A common deficiency identified in 2025 PCAOB inspection reports is the lack of controls over the reconciliation between PRC GAAP and US GAAP — specifically, the failure to document the assumptions used in the VIE consolidation model.

The 10-K must disclose any material weaknesses in ICFR identified by management or the auditor. A material weakness is defined under PCAOB AS 2201.02 as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. For a China-based issuer, the most common material weaknesses involve: (1) inadequate segregation of duties between PRC operating management and the Cayman holding company board; (2) insufficient documentation of VIE contractual arrangements; and (3) lack of independent oversight of the PRC-to-US GAAP reconciliation process.

The 10-Q requires an updated ICFR assessment under SOX 302, but does not require the auditor’s attestation. However, if a material weakness existed in the most recent 10-K, the 10-Q must disclose any changes in ICFR that occurred during the quarter, and whether the material weakness has been remediated. The SEC’s 2025 guidance on ICFR disclosures for foreign private issuers (SEC Release 33-11275) explicitly states that a 10-Q filed by a China-based issuer must include a certification by the principal executive and financial officers that is identical in scope to that required for a domestic filer under SOX 302.

Filing Mechanics, Timelines, and Exchange Requirements

The filing timeline for a US-listed China company depends on its filer status. A large accelerated filer (public float above USD 700 million) must file its 10-K (Form 20-F for foreign private issuers) within 60 days after the end of the fiscal year, and its 10-Q (Form 6-K for foreign private issuers) within 40 days after the end of each quarter. An accelerated filer (public float between USD 75 million and USD 700 million) has 75 days for the 10-K and 40 days for the 10-Q. Non-accelerated filers have 90 days for the 10-K and 45 days for the 10-Q.

The NYSE and Nasdaq have their own continued listing standards that interact with the SEC filing requirements. Under NYSE Listed Company Manual Section 802.01E, a company that fails to file its 10-K within the SEC deadline must notify the exchange immediately and may be subject to delisting proceedings if the filing is not made within 30 days of the missed deadline. Nasdaq Listing Rule 5250(c)(1) imposes a similar requirement, with a 15-business-day grace period for the filing of an extension request under SEC Rule 12b-25.

For a China-based issuer, the most common reason for a late filing is the failure to complete the PCAOB audit in time due to delays in obtaining PRC regulatory approvals for the audit workpaper transfer. The SEC’s Rule 12b-25 allows a 15-day extension for the 10-K and a 5-day extension for the 10-Q, but the issuer must file a Form 12b-25 with a detailed explanation of the reason for the delay and an estimate of when the filing will be made. A 2025 SEC administrative proceeding against a Shenzhen-based semiconductor issuer (SEC Release 34-100123, April 2025) resulted in a USD 1.5 million penalty for failing to file its 10-K on time and for making false statements in its Form 12b-25 regarding the status of its PCAOB audit.

Actionable Takeaways for the Drafting Team

1. The VIE structure must be fully disclosed in the 10-K with a separate VIE schedule and a specific risk factor on PRC regulatory intervention, as failure to do so has triggered 40+ SEC comment letters in 2025.
2. The US GAAP-to-PRC GAAP reconciliation schedule must be documented in the audit workpapers and quantified in the MD&A for each material line item, with revenue recognition under ASC 606 being the most common adjustment.
3. The SOX 404(a) ICFR assessment must include controls over the VIE consolidation model and the PRC-to-US GAAP reconciliation process, as PCAOB inspections have identified these as the most common material weaknesses for China-based issuers.
4. The 10-Q must include a forward-looking risk factor update for any material change in PCAOB inspection status, PRC regulatory action, or delisting notification, and the SOX 302 certification must be identical in scope to a domestic filer’s certification.
5. Filing deadlines under SEC Rule 12b-25 are strictly enforced, and a late filing without a valid Form 12b-25 explanation can result in delisting proceedings from the NYSE or Nasdaq within 30 days.