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PCAOB sanctions four audit firms in enforcement ‘sweep’

Oct. 5, 2022

Dive Brief:

  • The Public Company Accounting Oversight Board (PCAOB), acting on a pledge this year to toughen enforcement, fined four firms for failing to disclose the leaders of audits and involvement in their work by other audit firms.
  • PCAOB, after a so-called sweep simultaneously collecting information from several firms, identified four auditors that allegedly failed to file Form AP in violation of Rule 3211, “Auditor Reporting of Certain Audit Participants,” the board said. While neither admitting nor denying the charges, the firms agreed to pay penalties totaling $95,000 and create procedures to ensure compliance with PCAOB rules, the board said.
  • “Investors and the public rely on Form AP disclosures to understand exactly who has a hand in audits of public companies,” PCAOB Board Chair Erica Williams said in a statement. “Timely disclosure is critical for transparency and accountability in our capital markets, and the PCAOB will be vigilant in enforcing disclosure rules.”

Dive Insight:

The PCAOB sanctions align with a 2022-2026 draft strategic plan committing the board this year to increase average penalties, enforce some rules for the first time and stage sweeps of auditors that may have violated standards. The board released the plan for public comment in August.

Since assuming the top post at the Securities and Exchange Commission (SEC) last year, Gary Gensler has replaced PCAOB leadership and called on it to strengthen oversight of the accounting firms that audit publicly listed companies. Williams was sworn in as chair in January.

The PCAOB was established after the Enron accounting scandal under the Sarbanes-Oxley Act of 2002.

“This board is approaching enforcement with a renewed vigilance,” Williams said in a speech last month.

“We intend to use every tool in our enforcement toolbox and impose significant sanctions, where appropriate, to ensure there are consequences for putting investors at risk and bad actors are removed,” she said. “This includes substantial monetary penalties and significant or permanent individual bars and firm registration revocations.”

Gensler and other SEC commissioners in August backed tougher PCAOB standards for audits involving more than one audit firm, saying stricter rules will streamline coordination and communication between firms and improve audit quality and investor protection.

That month the PCAOB imposed $275,000 in fines and other sanctions against KPMG-South Africa and two of its partners for using an unregistered accounting firm in Zimbabwe from 2015 until 2017 and failing to adequately supervise the firm.

Williams in announcing the crackdown underscored the imperative that auditors disclose the participation of other accounting firms and closely oversee them, noting that more than one firm is often involved in audits of companies with global operations.

The board’s recent enforcement action swept up a China-based firm, Shanghai Perfect C.P.A. Partnership, for allegedly failing to file three Form APs for audits of two firms begun as early as 2017. The PCAOB fined the firm $20,000.

Under Rule 3211, auditors must file a Form AP by the thirty-fifth day after the date audit reports are first included in filings made to the SEC.

PCAOB officials last month began inspecting China-based audits to determine whether some of China’s largest companies can remain listed on U.S. stock exchanges.

The PCAOB and regulators in China reached an agreement in August granting the board “complete access” to the work of accounting firms in Hong Kong and mainland China.

Gensler warned at the time that if China obstructed efforts by the PCAOB to review the work of audit firms, roughly 200 China-based companies could be de-listed from U.S. stock exchanges.

“The agreement we signed with our Chinese counterparts guarantees complete access,” Williams said last month. “The PCAOB will accept nothing less than complete access when we make our determinations by the end of this year.”

The SEC charged Deloitte China last month with failing to comply with U.S. auditing requirements in connection with certain U.S.-listed companies. Deloitte China agreed to pay a $20 million penalty.

The board in its enforcement of Rule 3211 also sanctioned James Pai CPA PLLC, Liebman Goldberg & Hymowitz LLP and Yarel + Partners, which is based in Tel-Aviv.

[CFO Dive]