Oh look, the PCAOB snagged more big fish: $7.9 million in total fines against three China-based firms and four individuals in “historic settlements.” Whoop-de-doo.
So here’s what the PCAOB is celebrating today:
- Two disciplinary orders imposing a total of $7 million in penalties against two registered public accounting firms within the PwC global network, Shanghai-based PricewaterhouseCoopers Zhong Tian, LLP (“PwC China”) and Hong Kong-based PricewaterhouseCoopers (“PwC Hong Kong”), for violating PCAOB quality control standards related to integrity and personnel management; and
- A disciplinary order imposing immediate practice limitations (including prohibitions on accepting new PCAOB audit clients), an independent monitor to improve practices and ensure compliance, $940,000 in fines, and bars against individuals at Shandong Haoxin Certified Public Accountants Co., Ltd. (“Haoxin”), a mainland China-based registered public accounting firm, and four of its associated persons for violations that include 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 respective orders for your viewing pleasure 🚨PDF alert🚨
- PricewaterhouseCoopers Zhong Tian, LLP (“PwC China”)
- Hong Kong-based PricewaterhouseCoopers (“PwC Hong Kong”)
- Shandong Haoxin Certified Public Accountants Co., Ltd. (“Haoxin”)
Both PwC China and PwC Hong Kong were engaging in “improper answer sharing” for several years, thus they’ve been sanctioned for violating PCAOB quality control standards related to integrity and personnel management.
Both firms failed to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses. From 2018 until 2020, over 1,000 individuals from PwC Hong Kong, and hundreds of individuals from PwC China, engaged in improper answer sharing – by either providing or receiving 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. The overwhelming majority of the professionals implicated in the answer sharing performed work for the firms’ Assurance practices.
Haoxin’s violations were a bit more serious and actually detrimental to the health of capital markets unlike a bunch of overworked auditors sharing answers on checkbox learning modules.
- Haoxin violated the U.S. securities laws by issuing an audit report falsely stating that the firm’s audits of the 2015-2017 financial statements of Gridsum had been performed in accordance with PCAOB standards and that Haoxin was independent of Gridsum, when Haoxin knew, or was reckless in not knowing, that its audits did not comply with PCAOB standards and that it was not independent of Gridsum.
- Liu, the engagement partner for the Gridsum audits, and Ma, the engagement quality reviewer, recklessly contributed to the firm’s violations of the U.S. securities laws and PCAOB rules and standards.
- Haoxin, Liu, Ma, Sun, and Zhu violated independence requirements and/or PCAOB auditing, ethics, and/or quality control rules and standards. Among other violations, Haoxin and the engagement team improperly relied on a predecessor auditor’s draft work papers, adopted those draft work papers as their own, and performed limited additional procedures before issuing an unqualified audit opinion on Gridsum’s 2015-2017 financial statements. In addition, Haoxin, Liu, and Ma violated relevant independence requirements by informing Gridsum that they expected to issue an unqualified opinion before Gridsum had actually engaged Haoxin as its external auditor.
Liu Kun is a partner of Haoxin and was engagement partner for the Gridsum Audits; Ma Yao is a director and was engagement quality reviewer, Sun Penghuan (great name) is a director and served as the manager for the audits in question, and Zhu Dawei is a partner and at all relevant times was the firm’s chief partner and legal representative.
The firm and Zhu provided false information to PCAOB enforcers and therefore were penalized for failing to cooperate with the investigation along with the audit work violations.
But wait! It gets worse. For these people anyway. Zhu and Ma’s financial situation is so bad the PCAOB decided to reduce their civil money penalties. Zhu’s would have been $120,000 and Ma’s $75,000, the Board lowered the penalties to $20,000 for Zhu and $50,000 for Ma. Wow, Zhu must really be broke. Total fines are thus $750,000 for the firm and $190,000 total for the four named individuals.
Let’s all give the PCAOB a round of unenthusiastic golf clapping for their hard work.