Beijing penalizes PwC with record six-month suspension over Evergrande audit
Chinese authorities handed down a six-month business suspension and a hefty fine of 441 million yuan ($62 million) to PwC’s auditing unit in mainland China for its audit of troubled property developer China Evergrande Group. The China Securities Regulatory Commission (CSRC) criticized PwC Zhong Tian LLP for turning a blind eye to Evergrande’s fraud while auditing the developer’s flagship unit, Hengda Real Estate, in 2019 and 2020.
The CSRC’s investigation revealed that PwC Zhong Tian “even condoned” Evergrande’s fraudulent activities, which led to the record fine and business suspension. This marks the most severe penalty ever imposed on a Big Four accounting firm in China. PwC audited Evergrande for almost 14 years until early 2023.
As part of the sanctions, PwC Zhong Tian will be prohibited from signing off on certain key documents for clients in mainland China for the next six months. Additionally, the unit will be restricted from taking on new state-owned or domestically-listed clients for the next three years. Various penalties were imposed by the Ministry of Finance and the CSRC for auditing failures related to Evergrande.
The repercussions of this suspension and fine are significant for PwC, impacting its reputation and market share in China. The firm expressed disappointment in the audit work conducted on Hengda and announced changes in leadership as part of its accountability measures.
The CSRC’s probe found that PwC’s audit working papers on Evergrande’s projects were unreliable and incomplete. PwC’s failure to flag key issues during on-site inspections and the exclusion of problematic properties from audit samples were highlighted as contributing factors to the audit shortcomings.
The regulatory scrutiny has resulted in over 50 Chinese firms severing ties with PwC, affecting the firm’s client base in the country. PwC had approximately 400 Chinese clients, including tech giants Alibaba and Tencent, prior to the investigation.
The consequences of the penalties imposed on PwC Zhong Tian are expected to have long-term implications for the firm’s operations in China, impacting its ability to secure new business and retain existing clients.
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Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.