News & Insights

Auditor Liability Bulletin

March 22, 2024

PCAOB Sanctions Three Chinese Audit Partners for Violations of Audit Standards

On March 20, 2024, without admitting or denying findings, three partners of the mainland China-based firm, KPMG Huazhen LLP, settled with the PCAOB for violations of standards in connection with its audit of Tarena International, Inc.’s 2017 financial statements.

According to the PCAOB, two of the firm’s partners did not obtain sufficient appropriate audit evidence to support Tarena’s reported revenue. Specifically, the two partners failed to revise their control risk assessment and modify the nature, timing, and extent of substantive revenue testing in light of identified unremediated deficiencies in information technology general controls (ITGC) that they relied on. Further, the two partners did not appropriately evaluate the reasonableness of Tarena’s allowance for doubtful accounts by failing to obtain an understanding of how management developed the allowance estimate, failing to evaluate the reasonableness of the estimate, and failing to consider evidence indicating the estimate might not be reasonable. A third partner was charged for failing to properly supervise IT auditors on the audit.

The partners agreed to pay a total of $150,000 collectively in civil monetary penalties. Under the settled order, two partners are barred from being associated persons of a registered public accounting firm, while the third partner’s is limited from acting in certain roles on issuer audits for one year.  All three partners are required to complete additional continuing professional education.

The PCAOB press release is available here, and the settled order is located here