© Reuters. FILE PHOTO: U.S. and Chinese flags are seen in this illustration taken, January 30, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
(Reuters) -PricewaterhouseCoopers affiliates in Hong Kong and China and a Chinese audit firm have agreed to pay a total of $7.9 million in fines for failures related to audits of U.S.-listed Chinese companies, the U.S. accounting watchdog said on Thursday.
The penalties come over a year after Beijing and Washington struck a landmark deal that has allowed the U.S. Public Company Accounting Oversight Board (PCAOB) to inspect the books and records of Chinese companies listed in New York for the first time. While the fines are relatively small, they are among the biggest the watchdog has ever issued and indicate that the inspection deal, a decade in the making, is working as hoped.
“The days of China-based firms evading accountability are over. The PCAOB is demonstrating that we will take action to protect investors in U.S. markets and impose tough sanctions against anyone who violates PCAOB rules and standards, no matter where they are located,” said PCAOB chair Erica Williams in a statement.
PricewaterhouseCoopers firms in Hong Kong and China agreed to pay a total of $7 million for violating quality control standards after they failed to detect or prevent extensive answer-sharing on mandatory training courses, the PCAOB said.
“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.
The PCAOB also fined Shandong Haoxin Certified Public Accountants Co., Ltd. and four accountants $940,000 for violations including issuing a false audit report and failing to maintain independence from a public company client. The individuals are also facing industry bars of varying lengths, the PCAOB said.
Haoxin did not respond immediately to requests for comment.
The U.S. has for years worried that the auditors of U.S.-listed Chinese companies were falling down on the job, putting investors at risk. But Beijing had resisted allowing the PCAOB access to its auditors’ records, citing state secrecy concerns.
In August 2022, the two countries – spurred on by a new U.S. law that threatened to kick potentially 200 Chinese companies off U.S. exchanges – finally agreed a framework for beginning inspections of eight audits.
In May, the PCAOB said it found a slew of deficiencies in audits of U.S.-listed Chinese companies performed by PwC in Hong Kong and KPMG. At the time, the watchdog said it was common to find issues when first accessing a country’s auditors.
It did not disclose which companies’ audits it had selected for inspection, but Reuters has previously reported that Alibaba (NYSE:) Group Holding and Yum China Holdings (NYSE:) were among them.
The PCAOB’s inspection in the region continue and the regulator continues to have “complete access” in its inspections, Williams said on Thursday.
“American investors are better protected when the PCAOB can audit the auditors of issuers listed in the United States,” U.S. Securities and Exchange Commission chair Gary Gensler said in a statement.
