PwC fined $62mn and banned for six months in China
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Chinese authorities have banned PwC China for six months and fined it Rmb441mn ($62mn) for auditing failures related to the collapsed property developer Evergrande, in Beijing’s toughest action yet against a Big Four firm.
The move follows a March announcement by China’s securities regulator that PwC China had approved Evergrande’s accounts even though the developer had inflated mainland revenues by nearly $80bn in the two years before its default in 2021.
China’s finance ministry said on Friday that PwC Zhongtian, commonly known as PwC China, and its Guangzhou branch were aware of “major mistakes” in the audit of Evergrande from 2018 to 2020 but failed to point them out. The Guangzhou branch of PwC China has been ordered to shut down, according to the ministry.
PwC China had “severe flaws” in its auditing process of Hengda Real Estate, the name of Evergrande’s mainland unit, which led to “many false conclusions”, said the ministry.
The firm “lost its independence” and “inflated its profits” through the Evergrande audit, added the authorities.
In a statement, PwC said: “We are disappointed by PwC Zhong Tian’s (or “PwC ZT”) audit work of Hengda, which fell unacceptably below the standards we expect of member firms of the PwC network.”
It said it had terminated the employment of six partners and “exited” five staff directly involved in the audit.
Mohamed Kande, PwC global chair, said: “The work performed by PwC Zhong Tian’s Hengda audit team fell well below our high expectations and was completely unacceptable. It is not representative of what we stand for as a network and there is no room for this at PwC.”
He added: “China remains an important part of the PwC network and I remain confident in the China firm’s partners and staff as we work together to rebuild trust with stakeholders.”
The penalties on PwC China include Rmb116mn levied by the finance ministry and Rmb325mn from the China Securities Regulatory Commission.
The penalty surpasses the $31mn fine and three-month partial business ban imposed on Deloitte last year for “serious audit deficiencies” related to its work with China Huarong Asset Management, one of China’s largest bad-debt managers.