Historic PCAOB Sanctions: $7.9 Million Fines, Independent Monitor Imposed on China-Based Firms

The Public Company Accounting Oversight Board (PCAOB) has issued historic settlements, imposing a total of $7.9 million in fines on three China-based firms and four individuals for violating U.S. securities laws and PCAOB rules and standards. These are the first enforcement settlements since the PCAOB gained access to inspect and investigate firms in mainland China and Hong Kong in 2022.

The sanctions include the highest civil money penalty ever imposed against a China-based firm and one of the highest penalties against any firm. Moreover, in a groundbreaking move, a China-based firm is required, for the first time in a Board disciplinary order, to retain an independent monitor.

PCAOB Chair Erica Y. Williams asserted, "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."

The disciplinary orders include:

1. PwC China and PwC Hong Kong: The PCAOB sanctioned PwC China and PwC Hong Kong for violating PCAOB quality control standards related to integrity and personnel management. Over 1,000 individuals from PwC Hong Kong and hundreds from PwC China engaged in improper answer sharing during mandatory internal training courses. PwC Hong Kong agreed to pay a $4 million civil money penalty, and PwC China agreed to pay a $3 million civil money penalty. Both firms are required to review and improve their quality control policies within 150 days.
2. Shandong Haoxin and Four Individuals: Haoxin and four associated individuals were sanctioned for violations in connection with the audits of the 2015-2017 financial statements of Gridsum Holding Inc. The violations included issuing a false audit report, failing to maintain independence, and adopting the work of another accounting firm as their own. Haoxin agreed to pay a $750,000 civil money penalty, accept immediate practice limitations, and retain an independent monitor. The associated individuals were censured and agreed to pay civil money penalties ranging from $20,000 to $100,000.

PCAOB Director of Enforcement and Investigations, Robert E. Rice, emphasized that these sanctions underscore the global reach of PCAOB's inspection and enforcement programs. The move reflects the commitment to combat misconduct and improve audit quality across registered firms, irrespective of their location.

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