On March 27, 2023, the PCAOB issued a settled order against former New York-based audit firm Friedman LLP in connection with its alleged use and reliance on work performed by unregistered China-based audit firms in the course of audits for several Chinese issuers.  The order alleges that Friedman improperly allowed the unregistered firms to play a substantial role in the audits—in excess of what the order describes as a “20% substantial role threshold” for total hours and fees—and failed to reasonably supervise the unregistered firms’ work, in violation of Section 102(a) of the Sarbanes-Oxley Act and PCAOB Rule 2100.  The Board censured the firm and ordered it to pay a monetary penalty of $100,000.  The order noted that, because substantially all of the firm’s assets were recently acquired by another firm, the Board was not also ordering that Friedman undertake and certify the completion of certain improvements to its system of quality control.

The order is attached.