FACT SHEET: PCAOB Imposes Historic Sanctions on China-Based Audit Firms

“The days of China-based firms evading accountability are over. The PCAOB will take action to protect investors on 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 Y. Williams. “I want to thank the U.S. Congress for its leadership in passing the Holding Foreign Companies Accountable Act, which created the leverage for the PCAOB to secure the historic access which made these enforcement actions possible.”

Historic Sanctions

The Public Company Accounting Oversight Board (PCAOB) today announced the first major enforcement settlements with mainland Chinese and Hong Kong firms since securing historic access to inspect and investigate firms headquartered in China and Hong Kong in 2022 in accordance with the Holding Foreign Companies Accountable Act (HFCAA).

The settled disciplinary orders sanction three China-based firms and four individuals a total of $7.9 Million and include the highest civil money penalties the PCAOB has imposed against a China-based firm and some of the highest penalties it has imposed against any firm around the globe. 

The Firms

The sanctions cover two firms headquartered in mainland China and one in Hong Kong, including two China-based affiliates of a global network and one unaffiliated China-based firm, along with four individual auditors at a China-based firm.

• PwC China
• PwC Hong Kong
• Shandong Haoxin and four of its auditors

The Violations

• PwC China and PwC Hong Kong violated the integrity and personnel management elements of the PCAOB quality control standards by failing to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses. 
• Shandong Haoxin and four of its auditors falsified an audit report, failed to maintain independence from their issuer client, and improperly adopted the work of another accounting firm as their own.

The Sanctions

• $4 million in penalties against PwC Hong Kong and $3 million against PwC China, for a total of $7 million.
• To protect investors on U.S. markets, 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.

• $940,000 total penalties against the firm and four of its auditors
• To protect investors on U.S. markets, the order prohibits the firm from accepting new clients and bars four of its auditors from participating in U.S. issuer and registered broker-dealer audits. The firm must also retain an independent monitor at its own expense to improve practices and ensure compliance.

Key Firsts

• Largest civil money penalties against a China-based firm and some of the highest penalties period. 
  • Before today, the highest penalty imposed against a China-based firm was $50,000. Today’s $4 million fine matches the second-highest penalty amount for any firm in PCAOB history, and $3 million matches the third highest amount.
• First time ever that the PCAOB has been able to bring enforcement action against a mainland Chinese firm based on its audit deficiencies.
• The first time any China-based firm has had to retain an independent monitor and only the second time the PCAOB has required that of any firm that is not part of a global network.
• The first time ever that the PCAOB has been able to bring a case against a Chinese firm as a direct result of the PCAOB’s inspection of that firm.

These enforcement orders were possible thanks to the leadership of the U.S. Congress in passing the HFCAA, which created the leverage for the PCAOB to secure complete access to inspect and investigate firms in China.

• The two PwC cases are a direct result of information learned in the inspections the PCAOB conducted last year after securing that access.
• PCAOB investigators were able to take witness testimony and obtain documents needed to bring the successful case against Shandong Haoxin because of the historic complete access.

As PCAOB Chair Erica Y. Williams has said, “Investors are more protected today because of Congress’ leadership.” 

• The PCAOB inspections team has completed fieldwork for 2023, with the complete access required under the HFCAA. They are already making plans to begin 2024 inspections early next year.  
• Together, the firms PCAOB inspected in 2022 and 2023 audited 99% of the total market cap of U.S.-listed companies audited by Hong Kong and mainland China firms, and the PCAOB is on track to inspect firms that audited 100% of the total market cap by the end of 2024.
• Under the schedule, PCAOB teams will complete a full three-year cycle of inspections in just 27 months. 
• Separately, the PCAOB enforcement team will continue to take action to protect investors.
• The PCAOB continues to demand the complete access the HFCAA requires without loopholes or exceptions. Should authorities in the People’s Republic of China obstruct the PCAOB’s access – in any way and at any point – the Board will act immediately to consider the need to issue a new determination.