China levies a fine of $62 million on PwC for their involvement in the Evergrande debacle.
Regulators in China have handed PwC's auditing division in mainland China a six-month business pause and a record-breaking fine of 4.41 billion yuan ($62 million) due to the firm's audit of troubled property developer Evergrande Real Estate Group.
In a stern reprimand towards the Big Four firm, China's securities regulator claimed, on Friday, that their investigation exposed that PwC Zhong Tian LLP was instrumental in concealing and even endorsing Evergrande's deception during the auditing of its annual results for Hengda Real Estate in 2019 and 2020.
China Securities Regulatory Commission commented in a statement that PwC drastically undermined the foundations of law and morality, and jeopardized investors' interests.
For quite some time, Chinese authorities have been scrutinizing PwC's role in Hengda Real Estate's accounting, following the CSRC's allegation of a 5 trillion yuan ($78 billion) scam by Evergrande lasting two years up until 2020.
The suspension and fines are the most severe penalty ever imposed on a Big Four accounting firm in China and come amidst a wave of client departures and layoffs at PwC in recent months.
This decision could negatively influence PwC's future in China, which is the world's second-largest economy. In 2022, PwC Zhong Tian, the primary Chinese entity and main domestic arm of PwC, was the country's top-earning auditor, according to the latest available data.
The PwC network, PwC's global member units alliance, stated that they were disappointed with PwC Zhong Tian's audit work on Hengda, which fell short of their expected standards. They added that as part of their "accountability and remedial actions," Daniel Li, PwC China's territory senior partner, had resigned, and Hemione Hudson, the firm's global risk and regulatory leader, had taken charge.
China's Ministry of Finance imposed a six-month business suspension on PwC Zhong Tian and fined them 1.16 billion yuan ($16 million) for their auditing mistakes in 2018, as per an MOF statement.
China Securities Regulatory Commission, in a separate statement, revealed that they have confiscated PwC Zhong Tian's income associated with the Evergrande case totaling 277 million yuan and fined the unit 297 million yuan.
CSRC stated that, in a way, PwC had covered up and even endorsed Evergrande's financial fraud and false bond issuance. They added that PwC should be severely penalized according to the law.
In the past few months, numerous Chinese clients, primarily state-owned enterprises and financial institutions, have left PwC, following the initiation of the regulatory investigation into the firm.
At the time of March this year, PwC had approximately 400 Chinese clients, listed either in the domestic market or in offshore markets such as Hong Kong or New York, including tech giants Alibaba and Tencent.
Based on filings, more than 50 Chinese companies, including PwC's largest mainland China-listed client, Bank of China, have either terminated their relationship with PwC as their auditor or abandoned their plans to hire the firm.
This penality against PwC's auditing division could potentially impact their long-term business prospects in China. The fine and business pause are a significant blow to PwC's reputation within the Chinese business community.
