The Public Company Accounting Oversight Board (PCAOB) announced Tuesday it imposed monetary penalties and other sanctions in two unrelated actions for violations of the Sarbanes-Oxley Act and PCAOB rules and standards concerning the use of unregistered accounting firms in conducting issuer audits.
In one PCAOB action, the board censured and fined accounting firm WWC $50,000 and required it to “undertake and certify the completion of certain improvements to its system of quality control,” the PCAOB stated.
According to the PCAOB’s order, WWC used audit work performed by its unregistered Hong Kong affiliate that played a “substantial role” in 10 of WWC’s issuer audits between 2017 and 2020. Specifically, during these audits, WWC allowed the unregistered affiliate to exceed the 20 percent of total hours threshold for 10 issuer audits over the course of three years, “including one audit where WWC-Hong Kong incurred 88 percent of the total audit hours,” the PCAOB order stated.
Due to its failure to adequately plan and supervise WWC-Hong Kong’s participation in these 10 audits, the PCAOB found WWC failed to reasonably supervise the Hong Kong firm and “took no steps to ensure that the unregistered affiliate’s participation would be consistent with PCAOB registration requirements.”
The WWC action represented the first time the PCAOB has imposed sanctions for a failure to reasonably supervise an unregistered firm, the board stated.
In a second PCAOB order, the regulator censured and fined JLKZ CPA, a boutique CPA firm, and its managing partner, Jimmy Lee, $50,000 jointly and “restricted for two years JLKZ’s ability to accept new issuer or broker-dealer audit engagements,” the PCAOB stated.
“Under an arrangement with an unregistered Chinese firm, JLKZ issued audit reports for two issuers after personnel of the unregistered firm acted as the engagement partner, audit staff, and engagement quality reviewer for the audits,” according to the PCAOB. “The unregistered firm received most of the audit fees.”
The PCAOB said the JLKZ matter represents the first time it has imposed sanctions against a firm for issuing an audit report in which a separate, unregistered firm had conducted the underlying audit. As a result, the PCAOB found JLKZ violated PCAOB standard AS 3101.