Auditing

Chinese audits fail

PCAOB finds significant deficiencies in Chinese audits.
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Audits of two Chinese firms fell far short, according to an inspection report from the Public Company Accounting Oversight Board (PCAOB). According to the PCAOB, initial results relating to the audits are not good: Inspection reports “show unacceptable rates of…deficiencies,” Erica Y. Williams, PCAOB chair, said in a statement.

The reports inspected two regional branches of firms well-known in the US: KPMG Huazhen LLP in mainland China, and PricewaterhouseCoopers in Hong Kong. In expanding on the claim of deficiencies, Williams said they are “of such significance that PCAOB staff believe the audit firm failed to obtain sufficient appropriate audit evidence to support its work on the public company’s financial statements or internal control over financial reporting.”

The PCAOB, a nonprofit established by Congress to oversee audits of public companies, inspected four different engagements for each of the two firms in 2022. Seven of eight had the deficiencies discussed, which are called Part I.A deficiencies.

As to where things go from here, Williams said “It is not unexpected to find such high rates of deficiencies in jurisdictions that are being inspected for the first time,” adding that the results from these inspections “are consistent with the types and number of findings the PCAOB has encountered in other first-time inspections around the world.”

“We identified problems so now we can begin the work of holding firms accountable to fix them,” Williams asserted.

According to the Wall Street Journal, “More than 200 Chinese companies had been facing the risk of a delisting from American stock exchanges if their auditors couldn’t undergo a PCAOB inspection,” but now “The PCAOB’s ability to conduct inspections effectively restarted the three-year delisting clock for the companies.”—SW

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.