Chinese regulators have hit?PwC’s auditing unit in mainland?China?with a six-month business suspension and a record fine of 441 million yuan ($62 million) over the firm’s audit of troubled property developer?China?Evergrande Group.
Delivering a strong rebuke to the Big Four firm,?China’s securities regulator said Friday that its investigation found that?PwC?Zhong Tian LLP helped cover up and “even condone” Evergrande’s fraud while auditing the annual results of the developer’s onshore flagship unit — Hengda Real Estate — in 2019 and 2020.
“PwC?has seriously eroded the basis of law and good faith, and damaged investors’ interest,” said the?China?Securities Regulatory Commission in a statement.
Chinese authorities have been examining?PwC’s role in the accounting of Hengda Real Estate since the CSRC accused the developer in March of a?$78-billion fraud?over a period of two years through 2020.
The business suspension and fines are the toughest ever penalty received by a Big Four accounting firm in?China and come against the backdrop of an?exodus of clientele?and?layoffs?at the firm in recent months.
The move is set to cloud?PwC’s prospects in the world’s no. 2 economy.?PwC?Zhong Tian, the registered accounting entity and the main onshore arm of?PwC?in?China, was the country’s top-earning auditor in 2022, according to the latest official data.
“We are disappointed by?PwC?Zhong Tian’s audit work of Hengda, which fell unacceptably below the standards we expect of member firms of the?PwC?network,”?PwC?network, the alliance of?PwC’s global member units, said in a statement.
The firm said that, as part of its “accountability and remedial actions,”?PwC?China’s territory senior partner Daniel Li had stepped down and Hemione Hudson, the firm’s global risk and regulatory leader, had taken over from him.
The six-month business suspension was imposed by?China’s Ministry of Finance. The ministry also imposed a fine of 116 million yuan ($16 million) on?PwC?Zhong Tian for its auditing failure of Hengda in 2018, according to an MOF statement.
The CSRC said in a separate statement that it had confiscated?PwC?Zhong Tian’s revenue involved in the Evergrande case totalling 27.7 million yuan and fined the unit 297 million yuan.
“PwC?has, to a certain extent, covered up and even condoned Evergrande’s financial fraud and fraudulent issuance of corporate bonds,” said the CSRC statement.
“It (PwC) has to be severely punished according to law.”
Over the past few months, a growing number of Chinese clients, mainly state-owned enterprises and financial institutions, has been leaving?PwC, following the launch of the regulatory investigation into the firm.
The firm had about 400 Chinese clients, listed at home or in offshore markets such as Hong Kong or New York, in March this year, including tech behemoths Alibaba?and Tencent.
A Reuters calculation based on filings showed more than 50 Chinese firms, including?PwC’s largest mainland?China-listed client Bank of?China,?have either?dropped?PwC?as their auditor?or canceled their plans to hire it.
