PwC China Audit Unit Faces Temporary Ban and Fines Over Evergrande Collapse

| Image Credits: "Evergrande Guangzhou headquarters fenced by police" by Nrya is licensed under CC BY-SA 4.0.

PwC China Audit unit, PwC ZhongTian, has been suspended for six months and fined a record 441 million yuan ($62 million) for its role in the Evergrande scandal. This penalty is the largest ever imposed on a Big Four accounting firm in China. Other PwC units in China that offer non-audit services remain unaffected.

The China Securities Regulatory Commission (CSRC) has accused PwC of helping to cover up and condone Evergrande’s fraud, which involved inflating the company’s evenues by $78 billion (£61.6 billion).

PwC China has admitted that its audit of Evergrande’s annual results for 2019 and 2020 was "unacceptably below the standards" expected. The firm acknowledged significant misstatements and has apologized for the impact on clients.

REGULATORY ACTIONS:

• The Chinese Ministry of Finance imposed a six-month business suspension and a fine of 116 million yuan ($16 million) on PwC ZhongTian for its auditing failures.

• The CSRC has confiscated 27.7 million yuan in revenue from PwC’s work on Evergrande and imposed an additional fine of 297 million yuan. The CSRC criticized PwC for undermining legal and ethical standards and damaging investor interests.

INTERNAL RESPONSES AND LEADERSHIP CHANGES:

• PwC has taken several remedial actions, including the dismissal of six partners and the initiation of a process to penalize responsible team leaders. Senior partner Daniel Li has stepped down, and Hemione Hudson, PwC’s global risk and regulatory leader, has been appointed interim head of the Chinese unit.

• Mohamed Kande, PwC’s global chair, has emphasized that the audit failures do not reflect the firm’s standards and expressed confidence in the China unit’s ability to rebuild trust with stakeholders.

IMPACT ON PWC’S OPERATIONS:

• The suspension and fines come amidst an exodus of clients and layoffs at PwC China. Many Chinese clients, including major state-owned enterprises and financial institutions, have recently left the firm or canceled plans to hire it.

• PwC ZhongTian was the top-earning auditor in China in 2022, but the penalties have clouded the firm’s prospects in the country.

EVERGRANDE AND FOUNDER ACCUSATIONS:

• Evergrande, which had extensive operations across over 280 Chinese cities and diversified into various sectors, went into liquidation in January. The Chinese authorities have imposed fines and bans on both the company and its founder, Hui Ka Yan.

PWC’S STATEMENT:

• PwC China expressed deep regret and apologized for the impact on clients and staff, committing to work diligently to regain trust and improve its practices.

SOURCES/ RECOMMENDED READ: 

• PwC hit with fine and six month China ban over Evergrande audit (bbc.com)

• China fines PwC a record $62 million for its role in the Evergrande collapse | CNN Business