The Pubic Company Accounting Oversight Board (PCAOB) sanctioned a major accounting firm, saying that it could not perform audits of Chinese companies, or generally audit clients in China, for three years, according to Accounting Today, based on a PCAOB order.

The firm, Marcum LLP, or more technically its subsidiary MarcumBP, which performed audits of Chinese entities under the main firm's supervision, was faulted for its audits of a manufacturer of energy-storage systems that started as a Delaware-based company before being bought by a Hong Kong-based firm in 2011 and moving operations to mainland China shortly after.

The PCAOB said that the auditors did not perform appropriate procedures in response to one of the manufacturer's wholly owned Chinese subsidiaries making a transfer of loan proceeds to a Chinese purchasing agent as prepayment to buy equipment and materials that the agent never ultimately delivered. While the agent returned a portion of the prepayment, some of which was in the form of unusual same-day round-trip transfers, most of the money stayed with the agent.

The PCAOB said the team "improperly acquiesced to management’s deletion of important language from confirmation requests designed to test the Subsidiary’s compliance with loan agreements," and "failed to perform the audit procedures necessary to resolve inconsistent audit evidence concerning whether the Agent was a related party." The PCAOB said that, in addition, management "interfered in the confirmation process by directing a junior member of the engagement team to particular persons at each lender from whom he obtained the lenders’ confirmation responses."

Accounting Today said Marcum has not commented on this matter.

The sanctions reflect an ongoing conflict between U.S. and Chinese audit regulators over the reliability of firm information. Recently, Treasury Secretary Steven Mnuchin said that  Chinese firms must comply with the requirement that firms allow the PCAOB to look at their audits, as is done in the United States. Chinese firms will have to comply by Jan. 21, 2022, or else they will be delisted from U.S. exchanges.

PCAOB access to Chinese audits has long been a source of tension between the two countries. While the PCAOB and its Chinese counterpart tried for years to negotiate a joint inspection agreement similar to the ones established in many other countries, the talks ultimately collapsed in 2015. A major sticking point in negotiations was that a program of the type that the PCAOB was proposing would have run afoul of China's strict laws on sharing information with foreign entities. The PCAOB, meanwhile, has expressed concern on numerous occasion about the accuracy of the numbers coming from Chinese audit firms on companies seeking to be listed on U.S. exchanges.