China has suspended the operations of PricewaterhouseCoopers (PwC) for six months and imposed a record penalty over lapses in its auditing of China Evergrande Group, according to a Bloomberg report.
Citing statements by the Ministry of Finance and the China Securities Regulatory Commission (CSRC), the news agency said the accounting firm was fined 441 million yuan ($62 million) for its auditing work on Evergrande’s inflated financial reports from 2018 to 2020.
The regulator also ordered the closure of PwC’s branch in Guangzhou. PwC has been under the spotlight after China launched one of the biggest investigations of financial fraud in history.
Authorities have said developer Evergrande’s main onshore unit Hengda overstated its revenue by 564 billion yuan in the two years through 2020. PwC “turned a blind eye” to Evergrande’s fraud, the securities regulator said in a separate statement.
“Such a severe penalty will have a major impact on the confidence of PwC’s remaining domestic clients,” said Pingyang Gao, an accounting and law professor at HKU Business School. “It is very likely that there will be a mass exodus. So it will likely spell doom for PwC’s business in China.”
PricewaterhouseCoopers Zhong Tian LLP, a Shanghai-registered firm that is part of PwC’s global network, was Hengda’s auditor during the period in question. PwC was Evergrande’s auditor for more than a decade until it resigned in January 2023, due to what the developer said were audit-related disagreements.
The CSRC found that 88 per cent of PwC’s observation records on Evergrande’s property projects in 2019 and 2020 were untrue, leading to “severely unreliable” audit working papers.
Some residential projects that PwC considered to be finished at the time were still “vacant ground” when inspectors visited later, the regulator added. The accounting firm also deliberately avoided checking housing projects that Evergrande marked as “not to visit.”
