Securities Regulation Daily Wrap Up, PCAOB NEWS AND SPEECHES—Hong Kong audit firm and affiliate sanctioned for multiple PCAOB and SEC violations, (May 20, 2016)
Organizations Mentioned:AWC (CPA) Limited | AWC LLP | Kandi Technologies Group, Inc.
The PCAOB has censured a Hong Kong accounting firm, its managing director, and its director of audit in connection with the 2010-2012 audits of Kandi Technologies Group, Inc. for violating the Board’s rules and standards and Exchange Act Rule 10A-2. The Board also censured its New York affiliate, managing partner, and partner in connection with the audits of Kandi, which is a Delaware corporation with its headquarters and primary operations in China.
Violations. According to the order, AWC (CPA) Limited, its managing director, and the director of audit repeatedly failed to exercise due professional care and professional skepticism during the audits of Kandi’s consolidated financial statements. They failed to obtain sufficient evidence with respect to financial statement assertions, did not perform procedures designed to detect fraud or illegal acts, and failed to prepare and maintain adequate audit documentation. The firm issued unqualified audit opinions despite numerous deficiencies and red flags indicating potential fraud and undisclosed related-party transactions.
AWC (CPA)’s managing director, who served as the engagement partner on the Kandi audits, failed to supervise the engagement staff, and the firm failed to have an objective engagement quality review. The firm and the engagement partner were not independent of Kandi for the 2012 audit because the partner of its New York affiliate, AWC LLP, provided prohibited non-audit services by accepting a power-of-attorney from Kandi and representing it before a New York State regulatory agency. The firm lacked policies and procedures to ensure that its personnel maintained independence in all required circumstances.
Sanctions. The registration of AWC (CPA) was revoked, and it was ordered to pay a $10,000 money penalty. The managing director and director were barred and ordered to pay $10,000 and $5,000, respectively. The registration of AWC LLP was suspended for one year. Its managing partner was barred and ordered to pay a $5,000 civil money penalty. The Board placed limits on the partner’s activities with respect to public company audits and ordered him to receive additional education with respect to the ethics and independence requirements. The firms and individuals consented to the Board’s orders without admitting or denying the findings.
AWC (CPA) may reapply for registration after two years. Its managing director and the director of audit may file a petition for the Board’s consent to associate with a registered public accounting firm after two years and one year, respectively. The New York affiliate’s managing partner may seek the Board’s consent to associate after two years from the date of the order.
The releases are No. 105-2016-016 for AWC (CPA) and No. 105-2016-017 for AWC LLP.
Companies: AWC (CPA) Limited; AWC LLP; Kandi Technologies Group, Inc.
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