PCAOB Sanctions U.S. Audit Firm Over China Supervision Failures

Key Takeaways

• Audit Supervision Failure: TPS Thayer LLC did not adequately plan or supervise five audits involving a China-based firm that was not registered with the PCAOB.
• Transparency Lapses: The firm failed to disclose the unregistered auditor’s role in required Form AP filings and in communications with audit committees.
• Regulatory Sanctions: The PCAOB issued a censure, a $100,000 civil penalty, and imposed contingent remedial measures.

Deep Dive

A U.S. audit firm has been hit with regulatory sanctions after federal oversight officials found it leaned on an unregistered China-based firm to handle major portions of its audit work and failed to properly supervise or disclose that involvement.

The Public Company Accounting Oversight Board (PCAOB) said on December 4 that it reached a settlement with TPS Thayer LLC, issuing a censure, a $100,000 civil penalty, and a set of contingent remedial requirements aimed at strengthening the firm’s quality controls.

When Audit Work Leaves the Room

The PCAOB’s findings center on five audits of two public companies with principal operations in the People’s Republic of China, which were engagements where substantial procedures were executed by another public accounting firm based in China. The problem is that the firm wasn’t registered with the PCAOB.

TPS Thayer’s oversight failed to keep pace. Regulators found shortcomings in both the planning of the audits and in supervising the foreign firm’s work, raising concerns about the reliability of the audit evidence used to sign off on public company financials.

Disclosure Duties Are Not Optional

Audit committees and the investing public are entitled to know who is really doing the work. Yet TPS Thayer omitted the China-based firm’s role from PCAOB Form AP filings and did not alert the public companies’ audit committees as required.

Those omissions struck directly at transparency, which is a core concept behind audit accountability.

The settlement’s sanctions (a censure, $100,000 fine, and mandated remediation) reflect a growing insistence from regulators that U.S. firms cannot outsource responsibility when audit work crosses borders.

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