In its first enforcement settlements with mainland Chinese and Hong Kong firms since securing access to inspect and investigate Chinese-based auditing firms, the Public Company Accounting Oversight Board said it fined two units of PricewaterhouseCoopers in China, including $3 million and $4 million civil money penalties, respectively, against Shanghai-based PricewaterhouseCoopers Zhong Tian and Hong Kong-based PricewaterhouseCoopers, according to a press release Thursday.
In sanctioning the firms, the PCAOB asserted the companies “failed to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses” from 2018 until 2020 in a “widespread” practice involving more than 1,000 individuals from PwC Hong Kong and hundreds from PwC China. Without either admitting or denying the findings regarding the cheating, the firms agreed to pay the fines.
The actions come as the regulator has toughened enforcement of standards for the auditors of publicly traded companies under Chair Erica Williams, who took the board’s top post last year. “The days of China-based firms evading accountability are over,” Williams said in the release. “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.
A spokesperson for PwC US declined to comment on the matter but provided a statement from PwC Hong Kong and Zhong Tian that said they are committed to doing “better in the future”and noted they had reported the matter to the PCAOB during their inspection and cooperated in the matter.
“It is highly regrettable that a number of employees engaged in the improper sharing and use of technology aimed at assisting with internal trainings and assessments. After becoming aware of these issues, the Firms investigated these matters promptly and took remedial action. This included blocking any further use of or dissemination of the technologies concerned and directing the retake of courses where applicable,” the statement said.
The actions come six months after the PCAOB said it identified weaknesses in three of four audits performed by PwC in Hong Kong, following the first-ever inspection of audits focused on China-based companies listed on U.S. stock exchanges.
In addition to the latest sanctions against PwC, the PCAOB last week announced a third disciplinary action against Shandong Haoxin Certified Public Accountants, a mainland China-based public accounting firm, which was fined $940,000 for issuing a false audit report and other violations.
The PCAOB doesn’t have the authority to remove foreign companies from U.S. exchanges but the federal Holding Foreign Companies Accountable Act gives the U.S. Securities and Exchange Commission authority to do so if the PCAOB isn’t getting cooperation, CFO Dive previously reported. Under the law if the PCAOB can’t inspect registered public accounting firms then companies that use those firms for three straight years face prohibitions on their stock trading.
It’s not the first time a cheating scandal has hit a Big Four firm. Last year, the SEC fined Ernst & Young $100 million for cheating by its auditors on ethics exams and for withholding evidence of wrongdoing from the agency’s Enforcement Division.