backOn November 30, 2023, the PCAOB announced settled orders sanctioning one audit firm, Shandong Haoxin Certified Public Accountants Co., Ltd. (“Haoxin”), and four associated persons for allegedly violating the U.S. securities laws, independence rules, and auditing standards.
Specifically, the PCAOB alleged that Haoxin violated Section 10(b) and Rule 10b-5 of the U.S. securities laws by issuing a false audit report, and that Haoxin and four of its associated persons also violated independence requirements and PCAOB rules and standards in connection with the audits of the 2015-2017 financial statements of a Beijing-based issuer. The individuals at issue consisted of the engagement partner, the engagement quality reviewer, and the manager on the relevant audits, along with the head of the firm in the relevant period. The Board’s findings against Haoxin and the four individuals included violating auditor independence requirements by informing the issuer that Haoxin was prepared to issue an unqualified audit opinion before it was engaged as the issuer’s external auditor.
Moreover, the PCAOB alleged that Haoxin improperly relied on a predecessor auditor’s draft work papers, adopted those draft work papers as their own; and/or performed limited additional procedures before issuing the previously agreed to unqualified opinion. The Board also found that Haoxin and one of the individuals at issue (then-head of the firm) failed to cooperate with a PCAOB investigation by providing false audit documentation and other false information.
The PCAOB censured the firm and all four individuals, and imposed civil monetary penalties as follows: a $4 million penalty to Haoxin, and $190,000 in total penalties to the four individuals. Haoxin agreed to undertake certain remedial measures, accepted immediate practice limitations, and agreed to retain an independent monitor. The four individuals are barred from being associated persons of a registered public accounting firm (with the right to petition to reassociate after specified periods of time). Three of the individuals are also required to complete additional hours of continuing professional education.
The PCAOB’s press release is available here. The settled order is available here. PCAOB Chair Erica Y. Williams’ and SEC Chair Gary Gensler’s statements in support are available here: Williams, Gensler.