PwC lost dozens big clients in China, as Beijing officials pressed state-owned companies to cut ties with the auditing firm over its work with Evergrande.
Reuters reports that the Chinese Ministry of Finance has been giving “window instructions” — unofficial verbal instructions — for the last few months to some of China’s largest state-owned financial organizations, encouraging them to dispense PwC services.
In recent months, corporate filings reveal that PwC was dropped by Bank of China and China Life Insurance as well as PICC, China Taiping Insurance, China Cinda Asset Management, China Taiping Insurance, and China Cinda Asset Management. This year, it has lost over 30 listed companies on the Chinese stock exchange.
PwC is losing hundreds of millions in fees due to the departures. Bank of China paid PwC, for instance, $28 million to sign and check its accounts last year. PwC China responded by reducing headcount and partner pay.
The Ministry of Finance is the largest shareholder of many of China’s biggest financial institutions including banks, insurers and the main regulator of auditors.
PwC’s partners in China may not be sure if regulators are to blame for the recent client losses or if companies themselves have decided. The auditor is bracing itself for possible penalties, as Evergrande continues to cause a backlash. PwC China’s spokesman declined to comment.
PwC China, the third largest network firm in the group, has about 20,000 employees, only behind the United States of America and Britain. It is in the spotlight, however, having served as the auditor of Evergrande between 2009 and the end of last year.
Evergrande, once China’s largest property developer, took on debts exceeding $300 billion. However in 2021 it defaulted. The defaults of other property developers in China’s struggling industry followed.
Chinese regulators have said that Evergrande has committed fraud by overstating sales between 2019 and 2020. The group was ordered to be liquidated .
The Ministry of Finance warned Chinese companies last year to be “extremely careful” when hiring auditors who have been fined or penalized in the past 3 years.
The Chinese government is also trying to convince state-owned companies to hire local accountants to check their books, rather than relying on the Big Four global accounting firm. Beijing is trying to safeguard data and limit the influence of western auditors.
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