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Two first-of-their-kind sanctions are issued by the PCAOB

The Public Company Accounting Oversight Board (PCAOB) announced on Tuesday that it has imposed monetary penalties and other sanctions in two separate actions for violations of the Sarbanes-Oxley Act and PCAOB rules and standards regarding the use of unregistered accounting firms in issuer audits.

The PCAOB fined and censured accounting firm WWC $50,000 in one action and ordered it to "undertake and certify the completion of certain improvements to its system of quality control," according to the PCAOB.

WWC used audit work performed by an unregistered Hong Kong affiliate that played a "substantial role" in 10 of WWC's issuer audits between 2017 and 2020, according to the PCAOB order. Specifically, WWC allowed the unregistered affiliate to exceed the 20% of total audit hours threshold in ten issuer audits over three years, "including one audit where WWC-Hong Kong incurred 88 percent of the total audit hours," according to the PCAOB order.

WWC failed to reasonably supervise the Hong Kong firm and "took no steps to ensure that the unregistered affiliate’s participation would be consistent with PCAOB registration requirements" due to its failure to adequately plan and supervise WWC-Hong Kong's participation in these 10 audits, according to PCAOB.

According to the board, the WWC action was the first time the PCAOB imposed sanctions for failing to reasonably supervise an unregistered firm.

The PCAOB censured and fined JLKZ CPA, a boutique CPA firm, and its managing partner, Jimmy Lee, $50,000 in a second order, and "restricted for two years JLKZ’s ability to accept new issuer or broker-dealer audit engagements," according to the PCAOB.

According to the PCAOB, "under an arrangement with an unregistered Chinese firm, JLKZ issued audit reports for two issuers after personnel of the unregistered firm acted as the engagement partner, audit staff, and engagement quality reviewer for the audits.The unregistered firm received most of the audit fees."

The PCAOB stated that the JLKZ case is the first time it has imposed sanctions against a firm for issuing an audit report in which the underlying audit was conducted by a separate, unregistered firm. As a result, the PCAOB determined that JLKZ had violated AS 3101.



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