PCAOB Closes Door on Hong Kong Firm Over Repeated Audit Failures

Think the Luckin Coffee mess was ancient history? Not quite. The PCAOB has come down hard on Centurion ZD CPA & Co. This Hong Kong firm somehow managed to botch the 2021 audit of Luckin, after the coffee giant had already been exposed for fabricating hundreds of millions in transactions. Despite glaring fraud red flags from the year prior, Centurion skipped the basics: no proper risk assessments, no solid audit evidence, and zero professional skepticism. Toss in violations tied to two other companies, including Malaysian subsidiaries, and it’s clear this wasn’t just a one-off goof; it was a full-blown compliance faceplant. The PCAOB has now revoked the firm’s registration, barred its owner, Chan Kam Fuk, for life, and imposed a $75,000 fine. But the real kicker? This case is just the tip of the iceberg, and the full story raises some uncomfortable questions for auditors everywhere.

Auditing with Blinders On

You might wonder: how did this slip through the cracks for so long? That’s exactly what the PCAOB set out to understand. The board’s findings painted a picture of a firm with quality control so lax it makes a leaky boat look sturdy. There were issues, including assigning audit work to staff who lacked proper training, failing to disclose required information about other auditors involved, and not applying the level of professional skepticism expected under PCAOB standards.

In the audit world, skepticism isn’t optional; it’s mandatory. Especially when the client just wrapped up a fraud scandal with a massive SEC penalty. Yet in Centurion’s 2021 audit of Luckin, the whole thing came off like a routine job, as if that $300 million fraud never happened. That stance, combined with a series of reporting and compliance failures, was more than enough to capture the PCAOB’s full attention and ultimately cost Centurion its U.S. audit pass.

Brewed in China, Busted in D.C.

PCAOB enforcement chief Robert Rice didn’t sugarcoat it: “The Board is committed to protecting investors from auditors that have demonstrated... a disregard for complying with PCAOB auditing standards and rules.” And outgoing chair Erica Williams reminded everyone why it mattered that the Board finally gained inspection rights over Chinese audit firms in 2022. For years, U.S. regulators were unable to properly inspect Chinese and Hong Kong-based auditors, as they were restricted from accessing the relevant information. Thanks to new access deals, that changed. And Centurion became the first headline act in what could be a longer audit clean-up tour.

This case isn’t just about a single firm; it serves as a warning label for every audit practice working with U.S.-listed Chinese companies. With Centurion now blacklisted, expect other firms to double-check their risk models and compliance controls like their lives depend on it. Because, professionally speaking, they do.

Who’s Auditing the Auditors?

Let’s be real, this is already making waves in the region. With Centurion officially booted, other firms with Chinese clients or subsidiaries are likely running internal fire drills as we speak. Don’t be surprised if more auditors start tightening compliance faster than you can say “Sarbanes-Oxley.” And companies? Consider this a neon sign warning against rehiring tainted firms just for convenience. Luckin kept Centurion on even after its $180 million SEC settlement. That decision now looks like the audit equivalent of walking back into a burning building.

Here’s what professionals should take away:

• Don’t cut corners on risk assessments. If it smells fishy, it probably is. Skipping steps doesn’t save time; it attracts heat.
• Audit the auditors. Internal controls aren’t shelf décor. Put them to work, update them regularly, and train them aggressively.
• Stay skeptical. It’s not rude, it’s responsible, especially when fraud has already left its fingerprints.
• Disclose completely. Other auditors involved? Say so. Transparency is a requirement, not a courtesy.
• Staff up wisely. Assigning critical work to unqualified staff? That’s how audit nightmares begin.

Bottom line: with the PCAOB now watching closely, this isn’t the time to coast.

No More Half-Caff Audits

The Centurion case isn’t just about one firm dropping the ball; it’s a wake-up call for the entire audit profession. In a world where capital moves quickly, audit accountability must move even faster. The PCAOB now has real inspection power in regions it couldn’t touch before, and it’s clearly ready to use it. For companies listed in the U.S., the message is clear: hire auditors who go beyond checklists. And for international firms still skating by outdated controls? This is your last warning. Centurion’s out for good. But the real suspense? Who’s next, and how many firms are quietly wondering if their files could survive this level of scrutiny? The spotlight is on, and it’s only getting hotter.If you like your updates to be accurate, timely, and slightly witty, our newsletter was made for you. Sign up today.