China fines PwC $62 million for its role in the Evergrande collapse
Chinese Regulators Impose Severe Penalties on Auditing Firm Over Evergrande Case #
Chinese regulators have imposed a six-month business suspension and a record fine of 441 million yuan ($62 million) on a major auditing firm’s mainland China unit. The penalties are related to the firm’s audit of a troubled property developer’s onshore flagship unit.
The securities regulator stated that their investigation found the auditing firm had helped cover up and even condone fraud while auditing the annual results of the developer’s real estate unit in 2019 and 2020. The regulator accused the firm of eroding the basis of law and good faith, and damaging investors’ interests.
This action follows accusations made in March against the developer of a $78-billion fraud over a two-year period through 2020. The business suspension and fines represent the toughest penalties ever received by a major accounting firm in China, occurring amid an exodus of clientele and layoffs at the firm in recent months.
The move is expected to impact the firm’s prospects in China, where its registered accounting entity was the country’s top-earning auditor in 2022. In response to the penalties, the firm expressed disappointment in the audit work, acknowledging it fell below expected standards.
As part of its accountability measures, the firm announced leadership changes, including the stepping down of its China territory senior partner and the appointment of a new global risk and regulatory leader.
The business suspension was imposed by China’s Ministry of Finance, which also levied an additional fine for auditing failure of the real estate unit in 2018. The securities regulator confiscated the firm’s revenue involved in the case and imposed further fines.
Regulators accused the firm of covering up and condoning financial fraud and fraudulent issuance of corporate bonds, stating that severe punishment was necessary according to law.
In recent months, numerous Chinese clients, primarily state-owned enterprises and financial institutions, have been leaving the firm following the launch of the regulatory investigation. The firm had approximately 400 Chinese clients listed domestically or in offshore markets as of March this year.
Calculations based on filings indicate that over 50 Chinese firms, including major financial institutions and tech companies, have either dropped the firm as their auditor or canceled plans to hire it.