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PCAOB Sanctions China- and Hong Kong-Based Firms for Violations

S.J. Steinhardt
Published Date:
Dec 1, 2023

iStock-519089329 Audit

The Public Company Accounting Oversight Board (PCAOB) has sanctioned three China-based firms and four individuals as part of its first set of enforcement settlements with audit firms in the region since it gained full access to inspect them late last year.

Two affiliates of PwC—PwC Hong Kong and PwC China—agreed to pay a combined $7 million units over training exam misconduct from 2018 to 2020. During that time, more than 1,000 individuals from PwC Hong Kong, and hundreds of individuals from PwC China, either provided or received access to answers through two unauthorized software applications in connection with online tests for mandatory internal training courses related to the firms’ U.S. auditing curriculum.

Without either firm admitting or denying the orders’ findings, PwC Hong Kong was censured and agreed to pay a $4 million civil money penalty, and PwC China was censured and agreed to pay a $3 million civil money penalty. Both firms are required to review and improve their quality-control policies and procedures to provide reasonable assurance that their personnel act with integrity in connection with internal training, and to report their compliance to the PCAOB within 150 days.

PwC said it self-reported the problems to the PCAOB inspectors.

"We are committed to serving our clients and other stakeholders with distinction," said a statement from PwC Hong Kong/Zhong Tian emailed to Accounting Today. "When we do not fully meet the high standards we set for ourselves, we take action to learn lessons and commit to do better in the future. It is highly regrettable that a number of employees engaged in the improper sharing and use of technology aimed at assisting with internal trainings and assessments. After becoming aware of these issues, the firms investigated these matters promptly and took remedial action. This included blocking any further use of or dissemination of the technologies concerned and directing the retake of courses where applicable. We have since emphasized to all of our people our policies regarding appropriate conduct during online training courses, along with highlighting the significance of ethical and responsible use of emerging technology. We self-reported this matter to the PCAOB and have now reached a settlement. We are pleased that as part of that settlement the PCAOB has credited us with extraordinary cooperation in this matter."

The PCAOB disputed that contention in its enforcement order. "The Firm also took years to report to PwC Global the nature of the two answer sharing applications and that more than one thousand personnel downloaded the applications,” the order read. “In fact, it was not until September 2022, when the PCAOB conducted its first inspection of the Firm in Hong Kong and asked the Firm to identify any instances of improper answer sharing by its personnel, that the Firm finally told the PCAOB and PwC Global about these details."

A third firm, mainland-China based firm, Shandong Haoxin, was fined $750,000 and four of its auditors were fined $940,000 for issuing a false audit report, failing to maintain independence from their issuer client, and improperly adopting the work of another accounting firm as their own.

The combined enforcement actions include the highest civil money penalty the PCAOB  has imposed against a China-based firm and one of the highest penalties the Board has imposed against any firm.

“The days of China-based firms evading accountability are over,"PCAOB Chair Erica Y. Williams said in a statement. "The PCAOB will take action to protect investors on U.S. markets and impose tough sanctions against anyone who violates PCAOB rules and standards, no matter where they are located. I want to thank the U.S. Congress for its leadership in passing the Holding Foreign Companies Accountable Act, which created the leverage for the PCAOB to secure the historic access which made these enforcement actions possible.”