Bold statement: When a U.S. audit firm misses key supervision and disclosures, it triggers consequences that go beyond a simple slap on the wrist—and this case shows exactly how the system enforces accountability. But here's where it gets controversial: does the severity of penalties align with the scope of the lapses when the auditees are China-based entities? And this is the part most people miss—the ripple effects on global practice and regulatory expectations for cross-border audits.
The Public Company Accounting Oversight Board (PCAOB) announced a settled disciplinary order sanctioning TPS Thayer LLC (the Firm), a U.S.-based registered public accounting firm, for multiple findings tied to audits of two China-headquartered public companies.
Key Findings from the PCAOB:
- The Firm did not properly plan the five audits in question.
- The Firm did not reasonably supervise an unregistered public accounting firm, also based in China, which played a substantial role in the audits.
- The Firm failed to disclose the unregistered firm’s involvement on the PCAOB Form AP and in communications to the audit committees of the public companies.
Sanctions Imposed:
- The Firm is censured.
- A civil money penalty of $100,000 is assessed against the Firm.
- The Firm must undertake certain contingent remedial actions as part of the settlement.
Additional context:
- The PCAOB’s Division of Enforcement and Investigations provides more details on enforcement actions and how to report suspected auditor misconduct via the PCAOB Tips and Referrals portal.
- The PCAOB’s mission is to oversee the audits of public companies (and certain broker-dealers) to protect investors and ensure independent, informative audit reports.
If you’re exploring how cross-border audit supervision is regulated, this case illustrates the PCAOB’s emphasis on thorough planning, proper oversight of all engaged firms (including unregistered collaborators), and transparent disclosure to clients and regulators.
What do you think about the balance between penalties and audit risk in cross-border engagements? Should penalties be higher when unregistered firms are involved, even if the primary firm is U.S.-based? Share your thoughts in the comments.
