Dive Brief:
- The Public Company Accounting Oversight Board sanctioned a Hong Kong accounting firm and its owner for disregarding rules and standards when auditing the books of Luckin Coffee and two other companies operating in China.
- Centurion ZD CPA & Co and its sole partner, Chan Kam Fuk, failed to properly perform risk assessments and obtain sufficient evidence when testing for several types of risks, including in the 2021 audit of Luckin Coffee, the PCAOB said Tuesday. In 2020, the Securities and Exchange Commission fined Luckin $180 million for fraudulently overstating its 2019 revenue, costs and expenses.
- The PCAOB permanently revoked Centurion’s PCAOB registration, set a permanent bar against Chan and imposed a $75,000 penalty, the board said. Centurion and Chan neither admitted nor denied the findings, the PCAOB said.
Dive Insight:
Under Erica Williams — PCAOB chair from January 2022 until her resignation on Tuesday — the audit watchdog gained access to investigate China-based accounting firms for the first time and bring enforcement actions against violators.
The PCAOB in recent years held China-based firms accountable for falsifying audit reports, failing to maintain independence, improperly depicting the work of another accounting firm as their own and sharing test answers during mandatory internal training courses.
“The PCAOB is committed to using the tools the U.S. Congress entrusted to it, and the access that the PCAOB spent years negotiating, to hold accountable auditors in China that audit Chinese companies,” Williams said in a statement Tuesday before leaving the board at the request of SEC Chair Paul Atkins.
Luckin hired Centurion as its auditor soon after settling the SEC’s fraud charges. Yet in the audit for the following year, Centurion and Chan failed to use information about the company’s bogus accounting when assessing risks of misstatement or to design audit procedures aimed at averting fraud, the PCAOB said.
Centurion also violated auditing standards in the audits of two public companies operating in China, Greenpro Capital and Moxian, including by failing to make required communications with the companies’ audit committees, the PCAOB said.
Moreover, the PCAOB’s investigation of Centurion revealed that its quality control system did not provide sufficient assurance that the firm assigned work to staff with technical skills aligned with PCAOB standards, and ensure staff involved in the audit showed a level of skepticism required by PCAOB rules, the board said.
The SEC appointed George Botic to serve as acting PCAOB chair, effective Wednesday.
Botic, a certified public accountant, joined the audit watchdog shortly after it was formed in 2002, taking the position as manager of inspections in the division of registration and inspections in August 2003, according to his LinkedIn profile.
Botic became a PCAOB board member in 2023 after serving as director of the division of registration and inspections. In that role he oversaw the registration and inspection of all domestic and foreign accounting firms registered with the PCAOB as well as all broker-dealer audits.
Botic also served as the PCAOB director of the office of international affairs and special advisor to former Chair James R. Doty, and deputy director of the registration and inspections division.
Earlier in his career, Botic was employed by PwC as a senior manager.
