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U.S. securities regulators levied fines totaling more than $7 million against three China-based auditors for a variety of offenses including issuing a false audit report.
The Public Company Accounting Oversight Board, which oversees auditors of public companies listed on U.S. exchanges, announced Thursday that it had imposed fines against PwC China and PwC Hong Kong for “improper answer sharing” by hundreds of employees on tests for mandatory internal training courses.
It also sanctioned mainland China-based firm Shandong Haoxin and four of its auditors for falsifying an audit report, failing to maintain independence from its issuer client and plagiarizing the work of another accounting firm.
These sanctions are the largest civil money penalties the PCAOB has ever imposed against firms in mainland China and Hong Kong and the first time the regulator has brought an enforcement action against a mainland China auditor.
“The days of China-based firms evading accountability are over,” PCAOB Chair Erica Williams said at a press conference Thursday.
“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,” she added.
U.S. regulators accessed the financial records of Chinese auditors of U.S.-listed companies following the passage of the Holding Foreign Companies Accountable Act in 2020, which threatened to delist China-based companies if their auditors didn’t follow U.S. securities laws by allowing auditor inspections.
Popular China-based companies that list on U.S. exchanges include Alibaba Group Holding Ltd.
BABA,
and JD.com Inc.
JD,
Until a 2022 agreement by China to allow PCAOB inspections, investors worried that some popular names would be delisted from U.S. exchanges.
The PCAOB was created in the wake of the Enron and WorldCom accounting scandals and is overseen by the Securities and Exchange Commission.
A spokesperson for PWC Hong Kong and China said in a statement that the company self-reported the violations after discovering that employees engaged in improper behavior related to internal training and that “we are pleased that as part of the settlement the PCAOB has credited us with extraordinary cooperation in this matter.”
Shandong Haoxin was fined roughly $1 million for its violations and four of its auditors are now barred from participating in audits of U.S.-listed companies. The company is required to maintain an independent monitor and is also barred from taking on new U.S.-issuer clients, though it is allowed to continue to service existing clients.
Investors who wish to learn what other issuers the company audits can do so on the PCAOB website, which lists each U.S.-listed company a particular auditor oversees.
SEC Chair Gary Gensler praised the action, saying in a statement that he is “pleased that once again this year, the PCAOB has been able to fulfill its oversight responsibilities of audit firms in China and Hong Kong” and that “American investors are better protected when the PCAOB can audit the auditors of issuers listed in the United States.”
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