A significant penalty has been imposed on the China division of PricewaterhouseCoopers (PwC), a member of the esteemed "Big Four" accounting firms, by a US regulatory body due to extensive cheating by its staff.
Widespread Cheating UncoveredThe US Public Company Accounting Oversight Board (PCAOB) announced on Thursday that it had fined PwC's China arm $7 million.
This action comes in response to the firm's failure to detect or prevent extensive cheating by its staff during internal training exams in mainland China and Hong Kong. The PCAOB, in its statement, highlighted the widespread nature of the practice, involving over 1,000 employees from PwC Hong Kong and hundreds more from PwC China.
This penalty marks one of the highest fines ever imposed by the PCAOB and is the first enforcement action against Chinese companies since the 2022 agreement that permitted US regulators to inspect and investigate firms in mainland China and Hong Kong auditing Chinese companies listed on Wall Street.
The Nature of the Cheating Scandal
From 2018 to 2020, PwC staff engaged in improper answer sharing through two unauthorized software applications during online tests for mandatory internal training courses related to US auditing curriculum.
This incident was uncovered by the PCAOB, a Congress-led watchdog. The discovery of these practices has led to significant repercussions for the firm. A PCAOB spokesperson declared, “The days of China-based firms evading accountability are over”.
They emphasized the board's commitment to protecting investors on US markets and imposing stringent sanctions against violators of PCAOB rules and standards, regardless of their location.
PwC's Longstanding Presence and Response
PwC has been operating in China since 1906, positioning itself as the country's largest international accounting firm.
The mainland Chinese branch collaborates with its Hong Kong and Macao offices, boasting a collective workforce of over 20,000. The revelations about the cheating scandal were a direct result of inspections conducted last year, according to Williams from the PCAOB.
In response, PwC's Hong Kong and mainland Chinese offices released identical statements on Friday. They stated that upon learning of the cheating, they promptly investigated the matters and took remedial actions. These included blocking the use of the technologies involved and directing the retake of relevant courses.
Both firms acknowledged self-reporting the issue to the PCAOB and cooperating with US officials. They affirmed their commitment to learning from this experience and striving to meet higher standards in the future: “When we do not fully meet the high standards we set for ourselves, we take action to learn lessons and commit to do better in the future,” the statement from PwC Hong Kong and China read.