Chinese regulators have imposed a six-month business suspension and a record fine of 441 million yuan ($62 million) on PwC’s auditing unit in mainland China for its flawed audit of the troubled property giant China Evergrande Group.
The China Securities Regulatory Commission (CSRC) revealed Friday that PwC Zhong Tian LLP, the Big Four accounting firm’s branch in China, helped hide Evergrande’s financial fraud during its audits of the company’s flagship real estate unit, Hengda Real Estate, in 2019 and 2020.
“PwC has seriously undermined legal principles and harmed the interests of investors,” said the CSRC in a statement, criticizing the firm for covering up Evergrande’s misconduct.
This marks the most severe punishment ever levied on a major global accounting firm in China.
It follows an investigation by Chinese authorities into PwC’s role after the developer was accused of committing a $78 billion fraud between 2018 and 2020.
The penalties are expected to cast a shadow over PwC’s future in China, where PwC Zhong Tian was the country’s top-earning audit firm in 2022.
The suspension and fines come as the company has already seen an exodus of clients and job cuts amid mounting regulatory scrutiny.
PwC’s global network expressed disappointment over the firm’s audit of Hengda Real Estate.
“The audit work fell unacceptably below the standards we expect,” PwC said in a statement.
The firm also announced leadership changes, with Daniel Li, PwC China’s senior partner, stepping down, and global risk and regulatory leader Hemione Hudson taking over.
The six-month suspension was imposed by China’s Ministry of Finance, which also fined PwC Zhong Tian an additional 116 million yuan ($16 million) for its failure in auditing Hengda in 2018.
The CSRC further confiscated 27.7 million yuan of PwC’s revenue related to the Evergrande case and fined the firm 297 million yuan.
“PwC has, to some extent, covered up and even condoned Evergrande’s financial fraud and illegal bond issuance,” said the CSRC, calling for harsh legal consequences.
In recent months, PwC has faced increasing difficulties in China, with numerous clients, especially state-owned enterprises and financial institutions, severing ties with the firm.
By March 2023, PwC had over 400 Chinese clients, including major companies like Alibaba, Tencent, and Bank of China.
However, since the regulatory probe began, more than 50 firms have dropped PwC as their auditor or canceled plans to hire the firm.
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