PwC employees cheating on tests in China just cost the auditing firm $7 million in U.S. fines

Cheating on a test can now cost you millions of dollars—at least, if you're a U.S.-regulated accounting firm. The Public Company Accounting Oversight Board (PCAOB), a U.S. regulator, slapped $7.9 million in fines on three China-based firms and four individuals, accusing them of violating U.S. securities laws and PCAOB rules and standards.

“These are the first enforcement settlements with mainland Chinese and Hong Kong firms since the PCAOB secured historic access to inspect and investigate firms headquartered in China and Hong Kong in 2022,” the U.S. watchdog said in a statement Thursday.

PricewaterhouseCoopers is the highest-profile company implicated in the PCAOB's disciplinary sanctions, fined $7 million alone. The regulator said that over 1,000 of the firm's audit staff based in mainland China and Hong Kong cheated on mandatory internal training courses related to U.S. auditing. PwC China and PwC Hong Kong allegedly failed to detect and prevent extensive sharing of answers between 2018 and 2020.

Both PwC's China and Hong Kong units did not admit to nor deny the findings and agreed to pay a $7 million fine. The two firms also said in a joint statement that it was “highly regrettable that a number of employees engaged in the improper sharing and use of technology aimed at assisting with internal trainings and assessments," and that both were taking remedial action.

“The days of China-based firms evading accountability are over. The PCAOB will take action to protect investors on U.S. markets and impose tough sanctions against anyone who violates PCAOB rules and standards, no matter where they are located,” said PCAOB Chair Erica Y. Williams in a statement.

The PCAOB's actions on Thursday also targeted a Chinese audit firm, Shandong Haoxin. The company, along with four "associated persons," were fined a total of $940,000 regarding improper audits of Nasdaq-listed Gridsum Holding, a Chinese data analysis company.

“Before even being engaged as Gridsum’s external auditor, [Shandong Haoxin] told the company that it was prepared to issue a clean audit opinion on three years' worth of financial statements,” Williams said.

The company and the four individuals settled with the PCAOB without admitting to or denying its findings.

Auditing Chinese companies

In principle, any foreign company listed in the U.S. must comply with rules on transparency—yet Beijing barred access to company documents. U.S. regulators chose to let the issue slide as hundreds of Chinese firms flocked to U.S. equity markets to raise capital.

But in 2020, the U.S. passed the Holding Foreign Companies Accountable Act (HFCAA), which threatened to kick non-U.S. companies off its stock markets if they did not make their books available to regulators. The resulting dispute between Beijing and Washington over access threatened Chinese companies worth $1.3 trillion in market capitalization with delisting.

The PCAOB secured an agreement from Beijing in August 2022 to get complete access to audit firms in mainland China and Hong Kong. The regulator inspected two firms following the agreement, KPMG Huazhen LLP in mainland China and PwC in Hong Kong. In May, the watchdog said it found an "unacceptable rate" of deficiencies in audits of mainland Chinese companies.

Williams said on Thursday the PCAOB has completed its inspections for this year and has already made plans to begin its 2024 inspections early next year.

This story was originally featured on Fortune.com