WASHINGTON, May 10 (Portal) – A US accounting regulator found unacceptable deficiencies in audits of dozens of US-listed Chinese companies conducted by KPMG in China and PricewaterhouseCoopers in Hong Kong, the government agency said on Wednesday.
The US Public Company Accounting Oversight Board (PCAOB) released the results of its inspections after gaining access to Chinese company auditors’ records for the first time last year after more than a decade of negotiations with Chinese authorities. That access prevented some 200 China-based public companies from potentially being delisted from US stock exchanges.
The flaws were so severe that auditors failed to obtain enough evidence to support the companies’ financial reports, PCAOB Chair Erica Williams told reporters on Wednesday. The companies, two of the so-called “Big Four” in accounting, represent 40% of the market share of US-listed companies, which are audited by companies from Hong Kong and mainland China, she said.
Hong Kong-based PricewaterhouseCoopers (PwC) said it is working with the PCAOB to address the issues raised, noting that the inspection report marks an important milestone for US-China cooperation. KPMG’s business in China said in a statement it has taken steps to address the issues identified by the PCAOB.
While the findings are consistent with what the agency typically finds when it first gains access to a foreign country’s audit papers, they are likely to raise concerns among global investors about the accuracy of US-listed Chinese companies’ public financial reports.
“The fact that we found so many deficiencies is really a sign that the inspection process worked, and now we can get to work on holding companies accountable and improving audit quality,” Williams said.
The PCAOB will give the two firms a year to address quality control deficiencies and the agency will provide referrals to the agency’s enforcement team as appropriate, Williams said. Such investigations could ultimately result in fines or banning audit firms from working for US-listed companies.
PCAOB officials have already begun fieldwork for the 2023 inspections. With its work in 2023, the PCAOB believes it has reviewed examiners who represent 99% of the work in the region.
The agency will continue to require full access to do its work, Williams said. Should Chinese authorities begin to restrict access for inspections and investigations, a US law passed last year sets a two-year deadline for compliance or exclusion from American exchanges.
Reporting by Michelle Price and Chris Prentice
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