PCAOB Fines Three China-Based Accounting Firms, Four Individuals

The Public Company Accounting Oversight Board (PCAOB) announced enforcement settlements with three mainland Chinese and Hong Kong firms in accordance with the Holding Foreign Companies Accountable Act (HFCAA) which was signed into law in December of 2020. The HFCAA requires, in part, that the Securities and Exchange Commission (SEC) identify and publish a list of non-compliant public companies that the PCAOB has determined that it is unable to inspect or investigate as required under the Sarbanes-Oxley Act. Additionally, in August 2022 the PCAOB signed an agreement with the China Securities Regulatory Commission and China’s Ministry of Finance regarding cooperation in the oversight of PCAOB-registered public accounting firms in China and Hong Kong, which led to the examination of audit firms based in China by the PCAOB.

The sanctions cover two firms headquartered in mainland China and one in Hong Kong, including two China-based affiliates of PwC and one unaffiliated China-based firm, Shandong Haoxin, along with four individual auditors at that firm. The settlement states that PwC China and PwC Hong Kong violated the “integrity and personnel management elements of the PCAOB quality control standards by failing to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses.” The settlement also stated that Shandong Haoxin and four of its auditors, “falsified an audit report, failed to maintain independence from their issuer client, and improperly adopted the work of another accounting firm as their own.”

In a statement, SEC Chair Gary Gensler commented, “My sincere hope is that the Chinese authorities will continue to work cooperatively with the PCAOB such that the PCAOB will continue to be able to inspect and investigate completely issuer audit engagements in China and Hong Kong.”

Click here to read the PCAOB press release covering the settled disciplinary orders.
Click here to read SEC Chair Gensler’s statement concerning the PCAOB settlements.