Luckin Coffee (NASDAQ:LK) has a new auditor. Marcum Bernstein & Pinchuk (MBP) has replaced EY as Luckin’s auditor. MBP has picked up a number of Chinese companies where the Big Four auditor quits or is dismissed, including Ambow (NYSEMKT:AMBO) and NQ Mobile.
Separately, the PCAOB banned Marcum LLP (Marcum) and two of its partners from auditing Chinese companies for three years. The ban does not appear to apply to MPB which is a JV between Marcum and U.S.-based CPA firm Bernstein & Pinchuk. According to the PCAOB notice, MBP did field work on the audit that led to ban, but did not sign it. The ban raises a few questions about MBP. I understand it operates in China through a WFOE (wholly foreign owned Chinese incorporated subsidiary) that has a business scope as a consulting firm, not an auditing firm. The China WFOE is not registered with the PCAOB, which would be required if it participated in significant work on an audit signed off by Marcum. In addition, since Marcum is not a Chinese accounting firm, it is unclear to me why the PCAOB accepted having a non-accounting firm perform part of the audit. Additionally, MPB is inspected by the PCAOB, which must mean it is removing audit working papers from China in apparent violation of Chinese law. My guess is that MBP has been too small for U.S. and Chinese regulators to focus on, but now that it has signed on to Luckin, it is likely to get a lot more attention.
In addition, Francine McKenna and Watchdog Transparency have reported that MPB has switched the signing office on 12 of its 37 public audit clients. The signing office is the office where the partner is based. I understand that the change was because one of the audit partners moved to China. But MBP does not actually have a China office. It is the Chinese subsidiary of MBP that has a China office, and that office is not an auditor nor is it registered with the PCAOB.
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