The Public Company Accounting Oversight Board has sanctioned Hong Kong-based audit firm Crowe Horwath CPA Limited for refusing to cooperate with the board’s investigation of the firm’s audits of a publicly-traded Chinese company.
According to the PCAOB’s disciplinary order, the board’s Division of Enforcement and Investigations last year demanded that Crowe Horwath to produce audit work papers and other documents but the firm refused to comply, citing guidance from China’s Ministry of Finance.
The PCAOB said Crowe Horwath’s noncompliance “impeded the board’s ability to determine if [its] audits were performed in accordance with PCAOB rules and standards, and whether violations occurred that justified sanctions.”
Crowe Horwath consented to the sanctions, which include being censured and having its registration revoked for at least three years.
“The Sarbanes-Oxley Act authorizes the board to impose significant sanctions on any registered firm that refuses to produce requested information in board investigations,” PCAOB Chairman James R. Doty said in a news release. “This is an important tool in our work to protect investors, and we will not hesitate to use it when a firm refuses to provide our enforcement staff with work papers and related information necessary to ensure compliance with PCAOB rules and U.S. law.”
Since being registered with the PCAOB in April 2010, Crowe Horwath had through 2016 issued 50 audit reports for 22 different issuers publicly traded companies that are required to file audited financial statements with the U.S. Securities and Exchange Commission. All but two of those issuers reported having operations in mainland China.
In the case of a company identified only as Issuer A, Crowe Horwath advised the PCAOB that the Ministry of Finance had directed it not to produce audit work papers in the absence of a request by the board for assistance under a May 2013 memorandum of understanding between the Board, the China Securities Regulatory Commission and the ministry.
The board said the firm’s reliance on the 2013 MOU was “not a valid justification for refusing to provide documents in a board investigation,” describing the memorandum as non-binding.