PCAOB Sanctions James Pai CPA PLLC and Partner for Audit Failures

The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order(PDF) sanctioning (1) James Pai CPA PLLC (the “Firm”) and Yu-Ching James Pai, CPA (“Pai”), the sole owner and partner of the Firm, for violations of multiple PCAOB rules and standards in connection with two audits of one issuer client, (2) the Firm for violations of PCAOB quality control standards, and (3) Pai for directly and substantially contributing to the Firm’s violations. The PCAOB found that, in the audits, the Firm and Pai failed to perform appropriate risk assessments and obtain sufficient appropriate audit evidence in multiple areas, including revenue and related party transactions.

“Performing appropriate risk assessments and obtaining sufficient evidence are fundamental to an audit, and failure to meet these most basic requirements puts investors at risk,” said PCAOB Chair Erica Y. Williams.

The PCAOB also found that, in the audits, the Firm failed to:

• Have engagement quality reviews performed;
• Obtain written representations from management;
• Comply with requirements concerning critical audit matters, audit committee communications, and audit documentation; and
• Establish and implement a system of quality control to provide it with reasonable assurance that the work performed by engagement personnel met applicable professional standards and regulatory requirements.

The PCAOB found that Pai either committed or directly and substantially contributed to the same violations.

“Issuing an audit report stating that the audit was performed in accordance with PCAOB standards is a solemn commitment to the investing public, and serious consequences can follow when an auditor fails to meet that commitment,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations.

Without admitting or denying the findings, Pai and the firm consented to the PCAOB’s order. The order:

• Censures both respondents and imposes a $40,000 civil money penalty, jointly and severally, against them;
• Revokes the firm’s PCAOB registration with a right to reapply after three years;
• Bars Pai from being an associated person of a PCAOB-registered firm, with a right to petition the Board to terminate his bar after three years;
• Requires the firm to undertake remedial actions to improve its system of quality control and procedures before reapplying for registration; and
• Requires Pai to complete 40 hours of additional continuing professional education before seeking to terminate his bar.

PCAOB enforcement staff members Tony Chen, Sherry Tao, and Kristy Gold conducted the investigation, supervised by William F. Ryan, John Abell, and Joshua Cutler.

The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules.

Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website. Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.