PCAOB Sanctions Hong Kong Audit Firm and Three Individuals For Failing to Cooperate with Board Investigation
Audit Firm's PCAOB Registration Revoked, Employees Barred
The Public Company Accounting Oversight Board today announced settled disciplinary orders against a Hong Kong audit firm and three firm employees for failing to cooperate with a Board investigation of their audits of a U.S. publicly traded company based in the People's Republic of China.
"In unambiguous terms, the Sarbanes-Oxley Act and PCAOB rules require registered firms and their associated persons to cooperate with requests for information in Board investigations," said James R. Doty, PCAOB Chairman.
"As demonstrated here, the PCAOB is prepared to bring enforcement proceedings if parties fail to comply with the cooperation requirements imposed by U.S. law. Failure to cooperate with an investigation frustrates the PCAOB's ability to protect investors," he added.
PKF (PKF HK), a partnership based in the Hong Kong Special Administrative Region of the People's Republic of China, and three of its associated persons, failed to cooperate with a Board investigation by refusing to comply with formal demands for testimony as part of a Board investigation in connection with their audits of a China-based company.
Respondents based their refusal, in part, on a view that the PCAOB could not require their testimony other than through a request to Chinese authorities for assistance under a 2013 Memorandum of Understanding on Enforcement Cooperation (MOU) between the PCAOB and Chinese authorities. As the orders point out, respondents' reliance on the MOU was not a valid justification for their refusal to cooperate with demands in a PCAOB investigation because it does not alter a registered firm's legal obligation to cooperate with a PCAOB investigation.
The firm and its associated persons consented to the PCAOB's sanctions. They neither admitted nor denied the findings.
- PKF HK – Censured and firm registration revoked with a right to reapply after three years
- PKF HK employees Edith LAM Kar Bo, CPA; Derek WAN Tak Shing, CPA; and Kim Wilfred Ti, CPA – Each censured and barred from being an associated person, with a right to request terminating the bar after three years
For the individuals, the bar from being an associated person means that they may not associate with a registered public accounting firm; it also has the effect of barring them from serving in an accountancy or financial management capacity for any issuer or broker or dealer.
"The Board's enforcement authority is a fundamental tool for investor protection. The refusals of PKF HK and three of its associated persons to cooperate prevented the Board from determining whether PKF HK and its personnel fulfilled their obligations under PCAOB audit standards in an audit relied upon by U.S. investors," said Claudius B. Modesti, PCAOB Director of Enforcement and Investigations.
The PCAOB appreciates the assistance of the Enforcement Division of the U.S. Securities and Exchange Commission. PCAOB Enforcement staff members, R. Davis Taylor, Stefan Hagerup, Alan Lo Re, Tony Chen, and Marques Jenkins conducted the investigation.
The PCAOB oversees auditors' compliance with the Sarbanes-Oxley Act, professional standards, and PCAOB and SEC rules, including independence rules. Further information about the PCAOB Division of Enforcement and Investigations may be found on the PCAOB website. Suspected misconduct by auditors can be reported to the PCAOB Tip & Referral Center.