PwC Faces Suspension and Fine in China for Evergrande Audit
Chinese regulators are poised to impose a six-month business suspension on a significant portion of PricewaterhouseCoopers' (PwC) auditing unit in mainland China. This punishment stems from PwC's work on the troubled property developer Evergrande.
The business ban is expected to target PwC Zhong Tian LLP, the registered accounting entity and primary onshore arm of PwC in China. This follows months of pressure from Chinese regulators on several large state-owned clients of PwC to drop the auditor.
The scrutiny on PwC intensified after China's securities regulator revealed in March that Evergrande had inflated its revenues by nearly $80 billion in the two years preceding its 2021 debt default. This revelation came despite PwC's China unit giving Evergrande's accounts a clean audit.
The six-month ban will likely focus on PwC Zhong Tian's securities-related business and will be accompanied by a substantial fine, estimated to be at least 400 million yuan ($56 million). This combined penalty would mark the harshest punishment ever received by a Big Four accounting firm in China.
PwC Zhong Tian, registered in Shanghai and part of PwC's global network, served as Evergrande's auditor for over a decade before resigning in January 2023 due to audit-related disagreements.
Adding to PwC's woes, liquidators of the beleaguered Evergrande have initiated legal proceedings against the firm, accusing them of negligence and misrepresentation in their work for the collapsed property group.
Despite the current challenges, PwC China remained the country's largest accounting firm by revenue in 2022, generating Rmb7.9 billion ($1.1 billion). However, several prominent Chinese companies, including Bank of China, China Life Insurance, and PICC, have dropped PwC as their auditor this year following government guidance.