Chinese authorities have handed down a six-month ban and a hefty fine of over 400 million yuan ($56.4 million) to accounting firm PwC for its involvement in the audit of the collapsed property developer Evergrande. This marks the most severe punishment to date for international accounting firms operating in China. As a result of the ban, PwC will not be able to sign off on any financial results in the country for six months and has already seen a decline in clients.
The Ministry of Finance in China announced on Friday that it was imposing a 116 million yuan ($16.35 million) fine and confiscating illegal gains from PwC Zhong Tian, also known as PwC China. Additionally, the firm will face a six-month business suspension, the revocation of its Guangzhou branch, and an administrative warning. The China Securities Regulatory Commission also levied fines and confiscations totaling 325 million yuan ($45.8 million) on PwC for alleged deficiencies in conducting due diligence during the Evergrande audit.
The Chinese finance ministry stated that PwC had issued “false audit reports” on Evergrande and highlighted significant flaws in the audit procedures, resulting in misleading conclusions. PwC was accused of lacking “professional skepticism” and failing to identify errors and insufficient information disclosure by Evergrande during the audits. The securities regulator found that 88% of the records maintained by PwC regarding real estate projects were inconsistent with actual implementation, leading to unreliable information.
In response to the penalties, Mohamed Kande, global chair of PwC, expressed disappointment in the performance of the Hengda audit team, a subsidiary of China Evergrande Group. PwC Zhong Tian has indicated full cooperation with regulators and pledged to adhere to the administrative sanctions. The firm has terminated six partners and five staff directly involved in the Hengda audit and is in the process of applying financial penalties to current and former leaders responsible for the business.
PwC attracted regulatory scrutiny following Evergrande’s collapse in January, a stark symbol of China’s ongoing property crisis. According to the securities regulator, Evergrande inflated its mainland China revenues by nearly $80 billion in 2019 and 2020. PwC had audited Evergrande for 14 years until 2023, providing it with a clean bill of health. Despite the setback, PwC remains the largest of the “big four” accounting firms operating in China, with revenues of nearly 8 billion yuan ($1.1 billion) in 2022, surpassing competitors Deloitte, KPMG, and EY.
With a continued slump in the property market affecting various sectors of the economy, China has intensified efforts to curb excessive borrowing by developers. This crackdown aims to address challenges in construction, building materials, and home appliances that have arisen as a result of the property market downturn.
