The China division of the renowned “Big Four” firm PwC is facing a substantial $7 million fine from the US Public Company Accounting Oversight Board (PCAOB). The regulator disclosed that PwC failed to prevent extensive cheating during internal training exams in mainland China and Hong Kong, marking one of the largest fines ever imposed by the PCAOB.
Widespread Violation of Standards
The PCAOB revealed that the cheating, involving unauthorized software applications, was widespread and included hundreds of PwC China employees, along with over 1,000 PwC Hong Kong employees. This breach of quality control standards was particularly concerning as many of the involved employees later worked in the assurance practices of the firms, advising clients on corporate disclosures.
Historic Fines and Regulatory Actions
These penalties, totaling $7 million, are groundbreaking as they are the first imposed by the PCAOB against Chinese companies since a 2022 agreement allowed US regulators to inspect and investigate firms based in mainland China and Hong Kong auditing Chinese companies on Wall Street. The $4 million fine for PwC China is the second-highest penalty in PCAOB history, with the $3 million fine for PwC Hong Kong matching the third-highest amount.
No Tolerance for Irresponsibility
PCAOB Chair Erica Y. Williams emphasized the end of Chinese companies evading responsibility, asserting that the PCAOB will take robust action to protect US investors and enforce severe sanctions against rule violators, regardless of their location.
PwC’s Response and Remedial Measures
PwC’s mainland China and Hong Kong offices promptly investigated the matter and took remedial action, directing retakes of relevant courses and prohibiting further use or distribution of the involved technologies. Both firms claimed to have collaborated with US officials and self-reported the issue to the PCAOB, expressing commitment to learning from the incident and striving for better standards in the future.
Additional Fine for Fraudulent Audit Report
In a related development, the PCAOB fined Shandong Haoxin, a mainland Chinese accounting company, for submitting a fraudulent audit report. Shandong Haoxin and four associates received a total fine of $940,000 and are temporarily prohibited from working together at a registered public accounting firm.
The significance of these fines extends beyond monetary penalties, signaling a commitment to uphold auditing standards and ensuring accountability in international financial practices.