PCAOB Releases its First 2022 Inspection Reports for Mainland China, Hong Kong Audit Firms
May 10, 2023
On May 10, 2023, Public Company Accounting Oversight Board (PCAOB) Chair Erica Y. Williams made a formal statement after the PCAOB released inspection reports for two firms inspected in 2022: KPMG Huazhen LLP in mainland China and PricewaterhouseCoopers in Hong Kong. These are the first ever full inspection reports by the PCAOB in respect of audit firms based in mainland China and Hong Kong and result from longtime efforts by the PCAOB to gain access to inspect firms in China.
Both reports show unacceptable rates of Part I.A deficiencies, which are deficiencies of such significance that PCAOB staff believe the audit firm failed to obtain sufficient appropriate audit evidence to support its work on the public company’s financial statements or internal control over financial reporting.
The PCAOB inspected a total of eight engagements in 2022 – four at each of the two firms – including the types of engagements to which People’s Republic of China (PRC) authorities had previously denied access, such as large state-owned enterprises and issuers in sensitive industries.
PCAOB inspectors found Part I.A deficiencies in 100% (four of four) of the audit engagements reviewed at KPMG Huazhen and 75% (three of four) of the audit engagements reviewed for PwC Hong Kong.
The two firms inspected by the PCAOB in 2022 audited 40% of the total market share of U.S.-listed companies audited by Hong Kong and mainland China firms. The PCAOB Believes that it is on track to hit 99% of the total market share by the end of 2023.
Review the news release on PCAOB’s website.