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PCAOB fines KPMG China partners $150K

March 20, 2024

The Public Company Accounting Oversight Board imposed a total of $150,000 in fines against three partners at KPMG's firm in mainland China for violating PCAOB standards and imposed sanctions on them.

The order posted Wednesday by the PCAOB is the fourth settled disciplinary order against China- or Hong Kong-based firms or individuals after the PCAOB finally secured access in 2022 to inspect and investigate firms headquartered there.

"The PCAOB will take action to protect investors in U.S. markets and hold accountable anyone who violates PCAOB rules and standards, no matter where they are located," said PCAOB chair Erica Williams in a statement.

The PCAOB found the KPMG China partners violated PCAOB standards in connection with an audit of the 2017 financial statements of Tarena International Inc., now known as TCTM Kids IT Education Inc., a China-based education service provider whose shares are listed in the U.S. In 2019, Tarena restated its 2017 financial statements for, among other things, intentional revenue inflation and improper charges against accounts receivable.

The PCAOB found that two of the partners failed to obtain sufficient appropriate audit evidence to support Tarena's reported revenue. In evaluating Tarena's revenue, they learned about a number of uncorrected deficiencies in Tarena's internal and IT controls, but nevertheless kept relying on the controls to support their audit conclusions as if those controls were still effective.

The PCAOB also found that two of them failed to exercise due care and professional skepticism and didn't gather the appropriate audit evidence to support Tarena's net accounts receivable. They also didn't do enough to evaluate the reasonableness of Tarena's allowance for doubtful accounts or develop an adequate understanding of how management developed the estimate, appropriately evaluate its reasonableness, or adequately consider evidence indicating the estimate might not be reasonable. The other partner had overall responsibility for the involvement of KPMG China's IT professionals in the Tarena audit, but failed to do enough to supervise those IT professionals or identify several of the deficiencies in the IT audit procedures.

Representatives for KPMG China and the attorney representing the partners did not immediately respond to requests for comment.

Without admitting or denying the findings, the partners consented to the PCAOB's order, which censured them and imposed penalties, and barred two of them from being associated persons of a registered public accounting firm, with a right to petition the PCAOB for reconsideration after one year. For the other partner, the PCAOB restricted him from acting in certain roles on issuer audits for a one-year period. The partners were also required to complete continuing professional education courses.

[Accounting Today]

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