PwC China faces potential 6-month suspension, hefty fine over Evergrande audit

By Yomna Yasser On Aug 22, 2024

Evergrande Group (Photo Credit: VCG / Getty Images)

PricewaterhouseCoopers’ (PwC) Chinese mainland operations are facing a potential six-month suspension as punishment for their audit work with troubled property developer Evergrande, according to five sources with knowledge of the situation.

The suspension is expected to be imposed on PwC Zhong Tian LLP, the firm’s main onshore arm in China, and primarily impact its securities-related business. This would significantly affect PwC’s ability to serve listed companies, firms planning initial public offerings (IPOs), and investment funds within China.

The suspension will likely be accompanied by a substantial fine of at least 400 million yuan ($56 million). Combined, this would constitute the harshest penalty ever levied on a Big Four accounting firm in China.

The penalties, being handled by China’s Ministry of Finance (MOF), are still under review. PwC declined to comment on the ongoing regulatory matter, while the MOF has not responded to requests for comment.

PwC has been under investigation for its role in auditing Evergrande since accusations of a $78 billion fraud surfaced in March 2023. The firm audited Evergrande for nearly 14 years before ending the relationship in early 2023. The looming penalties have reportedly led to a significant loss of clients and cost-cutting measures at PwC China.

The suspension, if implemented, would prevent PwC Zhong Tian from signing off on critical documents for clients in China, including financial results, IPO applications, and other securities-related services. Additionally, Chinese regulations may restrict PwC Zhong Tian from acquiring new state-owned or listed clients for the next three years.

This potential penalty aligns with previous actions. In March 2023, Deloitte’s Beijing branch received a significant fine and a three-month suspension for audit deficiencies related to China Huarong Asset Management. This incident serves as a cautionary tale for accounting firms operating in China.

Attribution: Reuters