The Public Company Accounting Oversight Board censured TPS Thayer and fined the Sugar Land, TX-based accounting firm $100,000 earlier this month for violations that include failing to supervise an unregistered China-based firm.
According to the disciplinary order, which was released on Dec. 4, the audit regulator imposed these sanctions based on TPS Thayer’s conduct in connection with five audits of two public companies—Huadi International Group Co. and Ostin Technology Group Co.—that have their principal place of business in the People’s Republic of China.
Specifically, TPS Thayer failed to appropriately plan the five audits and failed to reasonably supervise an unnamed, unregistered public accounting firm, referred to in the order as “Firm A,” also based in China, that played a substantial role in those audits.
In addition, the Texas-based accounting firm failed to properly disclose the unregistered firm’s participation on the PCAOB’s required Form AP, as well as in communications to the audit committees of the public companies.
The order states:
TPS Thayer improperly allowed Firm A, which was not registered with the Board, to play a substantial role in five issuer audits – the audits of the financial statements of Ostin for fiscal years ended September 30, 2020, 2021, and 2022, and the audits of the financial statements of Huadi for fiscal years ended September 30, 2021 and 2022 (collectively, the “Audits”). Firm A was required to register with the Board before it played a substantial role in any issuer audits. TPS Thayer, however, failed to take adequate steps to ensure that Firm A’s participation in the Audits was consistent with PCAOB registration requirements, that is, that Firm A did not “play a substantial role” in the Audits because it was not registered.
Indeed, Firm A’s participation in the Audits in most instances far exceeded the “20% or more” substantial role participation threshold, as it incurred at least 49% of the total audit hours in four of the five Audits. Due to the Firm’s inadequate planning and oversight of Firm A’s participation in the Audits, TPS Thayer failed to reasonably supervise its associated person, Firm A, pursuant to Section 105(c)(6) of the Act, and failed to comply with PCAOB rules and standards concerning due professional care and audit planning.
In addition, the Firm failed to make required disclosures of Firm A’s participation in the Audits to the issuers’ audit committees and in its Form AP filings with the Board.
Finally, the violations described above demonstrate that TPS Thayer failed to establish and implement adequate quality control policies and procedures concerning the use and appropriate disclosure of the work of other accounting firms, in violation of PCAOB quality control standards.
“Although TPS Thayer had quality control policies and procedures in place at the time of the audits, those policies did not address PCAOB rules relating to substantial role participation by other accounting firms,” the PCAOB states in the order. “Moreover, TPS Thayer’s failures to reasonably supervise Firm A’s participation during the five audits demonstrate that TPS Thayer failed to establish and implement adequate policies and procedures to provide the firm with reasonable assurance that the work performed by engagement personnel met applicable regulatory requirements when using other accounting firms.
“TPS Thayer’s lack of adequate policies and procedures related to the use of other accounting firms resulted in the firm using an unregistered firm in a substantial role capacity in the audits and failing to make appropriate disclosures on Form AP and to issuer audit committees,” the PCAOB added.
In addition to agreeing to the censure and fine, TPS Thayer agreed to undertake certain contingent remedial actions that were required by the PCAOB.
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