The auditing giant PwC China has reportedly informed its clients that it anticipates a six-month ban from Chinese authorities and a substantial fine due to its role in auditing the now-collapsed property developer Evergrande. According to the Financial Times, PwC expects the ban, which will prevent the firm from conducting regulated activities such as signing off on financial results, to start in September and last for six months.
In March, Beijing’s securities regulator disclosed that Evergrande, once the world’s most indebted property developer before its collapse in January, had inflated its revenues by nearly 80 billion yuan (£61.6 billion) in 2019 and 2020. As a result, Evergrande was slapped with a 580 million yuan fine for the alleged fraud, and its founder, Hui Ka Yan, was detained by authorities in September and ordered to pay a $6.5 million fine.
The downfall of Evergrande has led to increased scrutiny of PwC China, which had audited the property developer’s accounts for 14 years until 2023. An unnamed former partner at PwC, which employs over 20,000 people in mainland China, told the FT, “The current partners are braced for impact.” As the most prominent of the “big four” accounting firms operating in China, PwC China generated nearly 8 billion yuan in revenues in 2022, according to the Chinese Institute of Certified Public Accountants.
However, amid heightened scrutiny of its ties to Evergrande, the auditor has been losing clients in recent months. This week, its largest mainland China-listed client, Bank of China, announced plans to switch to EY, while China Life Insurance, China Telecom, and PICC have also dropped PwC as a client, as reported by Reuters.
The forthcoming regulatory action against PwC China is expected to exceed the punishment received by Deloitte last year, which faced a $31 million fine and a three-month suspension related to its audit of China Huarong Asset Management. State-owned companies in China are typically barred from hiring auditors within three years of an auditor receiving a significant regulatory punishment. In February last year, reports indicated that Beijing had instructed state-owned companies to phase out contracts with the big four accounting firms to address security concerns and reduce the influence of western-linked auditors.
In response to the ongoing regulatory matter, PwC China stated, “Given this is an ongoing regulatory matter, it would not be appropriate to comment.”
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