PCAOB Violation Paper

On July 23, 2015, Keith K. Zhen, CPA a registered public accounting firm based in New York and had its registration revoked by the Public Company Accounting Oversight Board (PCAOB) and in addition was fined a sum of $15,000. Also, the owner of the firm Keith Zhen, CPA was barred from being an associate in a registered public accounting firm. The PCAOB imposed these sanctions because it discovered that the firm and its owner had violated PCAOB rules and standards during the audit of five of its clients. The PCAOB stated that it carried out these sanctions in order to protect investors from inaccurate audit reports and to promote the preparation of informative, accurate and independent audit reports.

Background: Section 103

China Northern Medical Device, Inc.: In 2010, 2012, and 2013 the CPA firm was engaged to audit the year-end financial statements of China Northern Medical, Inc. (China Northern), a Nevada based corporation with its headquarters in China. In the years following the separate audits (2011, 2013, and 2014), China Northern filed their Form 10-K with the Securities and Exchange Commission (SEC) and the CPA firm permitted the issuance of the client’s audit reports which were included in the Form 10-K filings without carrying out the mandatory engagement quality review and concurring approval of issuance, thus violating the AS 7. It is worthy to note that Zhen obtained an engagement quality review and concurring approval of issuance of the corporation’s 2011 year-end financial statements so it can be deduced (because he cannot claim ignorance of the AS 7) that he acted recklessly in failing to get a review of his work in the other

China Du Kang Co. Ltd: As in the case of China Northern above, the CPA firm was engaged to audit the 2010, 2012, and 2013 year-end financial statements of China Du Kang Co. Ltd (China Du Kang), a Nevada based corporation with its headquarters in China. In the years following the separate audits (2011, 2013, and 2014), China Du Kang filed their Form 10-K with the Securities and Exchange Commission (SEC) and the CPA firm permitted the issuance of the client’s audit reports which were included in the Form 10-K filings without carrying out the mandatory engagement quality review and concurring approval of issuance, thus violating the AS