The US Congress passed a law in 2020 under which the PCAOB must be able to inspect the audits of overseas companies listed on US markets. (Reuters pic)
WASHINGTON: US audit inspectors announced fines against China-based firms today, as part of a broader effort to hold US-listed Chinese companies up to American auditing standards amid simmering geopolitical tensions.
The US$7.9 million in penalties unveiled by the Public Company Accounting Oversight Board (PCAOB) represent some of the highest imposed on any firm globally, it said.
They mark the first time it “has been able to bring enforcement action against a mainland Chinese-based firm (on) its audit deficiencies,” PCAOB’s chair Erica Williams told a press conference.
The board’s work comes after a deal last year between the US and China to settle a longstanding dispute surrounding the auditing compliance of US-listed Chinese firms.
The risk was that around 200 Chinese companies such as e-commerce giant Alibaba could be ousted from US stock exchanges if they did not comply with American standards.
The access granted to the body has helped to ease delisting fears.
Williams said today that Chinese authorities “have not interfered with our ability to investigate completely.”
She added that the PCAOB would “use every tool we have to hold China-based firms accountable.”
The fines include a total of US$7 million against PwC Hong Kong and PwC China, Williams said.
Before this, the highest penalty imposed against a China-based firm was US$50,000.
The third penalty was against Shandong Haoxin and four of its auditors for falsifying an audit report and failing to maintain independence, among other issues.
Williams said the board is on track to inspect all Hong Kong and mainland China firms that audited US-listed companies by end-2024.
She added, “The days of China-based firms evading accountability are over.”
China had long cited national security concerns for denying foreign regulators access to local accounting firms.
However, the US Congress passed a law in 2020 specifically targeting Chinese firms, under which the PCAOB must be able to inspect audits of overseas companies listed on US markets.
As part of the earlier deal, the board was to be given full access to audit working papers.
An initial inspection last year found “unacceptable rates” of audit deficiencies, according to a report issued in May.
The PCAOB, a non-profit organisation established by Congress to oversee audits of public companies, had said it is “not unexpected” to find such high rates when jurisdictions are being inspected for the first time.
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