US watchdog fines PwC affiliates and Chinese accounting firm some US$8 million for audit failures
- PwC’s affiliates in China and Hong Kong will pay a total of US$7 million in penalties for failing to detect and prevent cheating on internal training exams
- Shandong Haoxin and four of its accountants fined US$940,000 for improprieties, including failing to maintain independence from their client
PwC’s affiliates in mainland China and Hong Kong, along with a Chinese accounting firm, have agreed to pay a combined fine of nearly US$8 million for auditing failures related to US-listed Chinese companies, according to the US accounting watchdog.
The settlements come a year after China and the US reached a landmark agreement that allowed the Public Company Accounting Oversight Board (PCAOB) to inspect auditors’ work of more than 100 Chinese companies.
The companies faced the prospect of being delisted from US exchanges if Chinese authorities continued to bar audit inspections on grounds of national security.
“The days of China-based firms evading accountability are over,” PCAOB chairwoman Erica Williams said on Thursday. “The PCAOB is demonstrating that we will take action to protect investors in US markets and impose tough sanctions against anyone who violates PCAOB rules and standards, no matter where they are located.”
The two PwC affiliates have agreed to pay US$4 million and US$3 million in penalties, respectively, for failing to detect and prevent cheating on internal training exams.
Between 2018 and 2020, more than 1,000 employees from PwC Hong Kong and hundreds of employees from PwC China engaged in “improper answer sharing” by providing or receiving answers using unauthorised software, said Williams.
The fines slapped on the PwC affiliates are the second and third-highest in the PCAOB’s history, she added.
“After becoming aware of these issues, the firms investigated these matters promptly and took remedial action,” the PwC affiliates said in a joint statement, noting they reported the problems to the PCAOB.
US accounting regulator finds ‘unacceptable rate’ of shortcomings in mainland China audits
The PCAOB also fined Shandong Haoxin Certified Public Accountants and four of its accountants US$940,000 for “failing to maintain independence from their issuer client, and improperly adopting the work of another accounting firm as their own”.
The watchdog also required that Shandong Haoxin retain an independent monitor at its own expense to ensure compliance – a first for any China-based firm – and temporarily barred four of its accountants from working on US audits.
Shandong Haoxin did not reply to requests for comment.
Auditing has been a long-running point of contention between Beijing and Washington. Despite a bilateral deal reached in August 2022 that allowed US auditors to inspect China-based accounting firms, Chinese authorities have long been reluctant to give overseas regulators access to data related to Chinese companies, citing national security concerns.
In China’s latest effort to tighten its grip on data security, the Ministry of Finance and internet regulator Cyberspace Administration of China jointly published draft measures on November 10 that require auditors to keep their audit working papers and related data in the country.
The rules apply specifically to auditors who have been hired by listed firms and non-listed state-owned financial institutions, as well as other state-owned companies. The rules also apply to firms that conduct cross-border auditing.
In January this year, the finance ministry and other government entities urged state-owned companies to let their contracts with the world’s big four accounting firms – KPMG, PwC, Deloitte and EY – expire, in a bid to rein in their influence and boost the prospects of local auditing firms.
