Hong Kong watchdog launches probe into Evergrande's financial statements

On Monday, Hong Kong's audit regulator said it had initiated an inquiry into the financial statements of China Evergrande Group's property services unit and its former auditor after questions were raised by the developer's probe into deposits worth $2 billion of the unit.

The Financial Reporting Council FRC said in a statement it was looking into the 2020 and first half of 2021 financial statements of Evergrande Property Services, as well as the audit carried out by PwC on its 2020 annual accounts.

The FRC found questions about the classification of restricted bank deposits and other loans, the measurement of pledge guarantees and the disclosure of related party transactions in the accounts, and related questions about the audits, and related questions about the audits, it said.

Evergrande Property Services and PwC did not respond to requests for comment.

Evergrande said on July 22 that an internal investigation had found $2 billion of funds held by Evergrande Property Services had been pledged to guarantee financing by the group for debt repayment. In the end, banks seized the money, cleaning out much of the unit's cash.

The audit watchdog first announced in October that it was investigating Evergrande's accounts and their audit by PwC because it had concerns about the adequacy of reporting on whether it could continue operating as a going concern.