The Public Company Accounting Oversight Board sanctioned PwC China and PwC Hong Kong 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.
Without either firm admitting or denying the findings in the orders concerning the improper answer sharing, PwC Hong Kong was censured and agreed to pay a $4 million civil money penalty, and PwC China was censured and agreed to pay a $3 million civil money penalty. Both firms are required to review and improve their quality control policies and procedures to provide reasonable assurance that their personnel act with integrity in connection with internal training, and to report their compliance to the PCAOB within 150 days.
These are the first enforcement settlements with mainland Chinese and Hong Kong firms since the PCAOB secured historic access to inspect and investigate firms headquartered in China and Hong Kong in 2022. The sanctions include the highest civil money penalty the Board has imposed against a China-based firm and one of the highest penalties the Board has imposed against any firm.
The sanctions also include a requirement – for the first time ever in a Board disciplinary order – that a China-based firm retain an independent monitor.
The PCAOB sanctioned the accounting firm Haoxin and four of its associated persons for violations of the U.S. securities laws and PCAOB rules and standards in connection with the audits of the 2015-2017 financial statements of Gridsum Holding Inc.
Among violations, firm principals informed Gridsum that they expected to issue an unqualified opinion before Gridsum had actually engaged Haoxin as its external auditor.
Haoxin was censured and agreed to pay a civil money penalty of $750,000 and to accept immediate practice limitations, including prohibitions on accepting new PCAOB audit clients and a requirement for pre-issuance reviews.
Haoxin also agreed to remedial undertakings, including to retain (at the firm’s expense) an independent monitor who will review and advise the firm on its policies and procedures, ensure the firm complies with the requirements of the order, and report back to the PCAOB.
The Financial Times reports that PwC peers Deloitte, KPMG and McKinsey have advised their U.S.-based executives not to use their work phones in the territory. This development illustrates the business community's perception of Hong Kong's security environment becoming one with the Mainland, where hacks and data security have long been suspect.
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