12 NOV 2024 / PCAOB UPDATES

PCAOB Pulls the Plug on Audit Firm for Bending Rules

- MYCPE ONE Insights Team

The Public Company Accounting Oversight Board (PCAOB) recently made a significant decision to revoke the registration of JTC Fair Song CPA Firm, a Chinese auditing firm based in Shenzhen. This action follows a series of rule violations and a consistent refusal by the firm to cooperate with PCAOB’s investigative processes.

JTC Fair Song’s troubles with the PCAOB stem from multiple instances of failing to submit required documentation on time, including critical reports and disclosures. Specifically, the firm repeatedly neglected to file PCAOB Form AP—an essential form identifying key audit participants in issuer audits—promptly. This was a direct breach of PCAOB Rule 3211, which mandates that registered firms disclose who is involved in an audit, allowing investors and stakeholders full transparency.

The firm also failed to file its annual reports for 2021, 2022, and 2023 as required by PCAOB Rule 2201. Under this rule, registered firms are required to submit an annual report by June 30 each year to maintain transparency. Failing to meet this basic reporting obligation created a blind spot for the PCAOB and for investors relying on accurate, up-to-date information about the firm’s operations.

When the PCAOB’s Division of Enforcement and Investigations launched a formal inquiry into these rule violations, JTC Fair Song dug its heels in even further. The firm outright refused to provide documents and information requested by the PCAOB, a move that directly violated PCAOB Rule 5110 on cooperation with investigations. According to Robert Rice, the PCAOB’s Director of Enforcement and Investigations, cooperation with the board’s investigative procedures “isn’t optional.”

The PCAOB’s patience eventually ran out. Without admitting or denying the findings, JTC Fair Song settled with the PCAOB. The board accepted this settlement, deciding not to impose a financial penalty due to the firm’s limited resources, but it revoked JTC Fair Song’s registration. While the board initially considered a fine of $50,000 for the firm’s non-compliance, it opted instead for this decisive revocation.

The PCAOB’s action underscores its dedication to transparency and investor protection, signaling its readiness to enforce compliance—even for international firms—to uphold the integrity of U.S. financial markets. This revocation serves as a warning to accounting firms operating in the U.S.: non-compliance with PCAOB standards won’t be tolerated. With this move, the PCAOB has highlighted its zero-tolerance approach, particularly for foreign firms auditing U.S.-listed entities, reinforcing its mission to ensure accountability across the board. Stay vigilant and avoid similar pitfalls.

Until next time…

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