More troubles for PwC. After the £15 million fine in the UK, Chinese branch received one sanction historic 62,2 million dollars (441 million yuan) and a six-month operating ban. This heavy measure was decided by the Chinese authorities due to the audit firm's role in Evergrande case, the real estate giant that went spectacularly bankrupt, leading to a mega-financial fraud scandal.
The Collapse of Evergrande and the Role of PwC: Here's What Happened
Evergrande, before its collapse, was one of the world's largest real estate developers, with debt exceeding $300 billion. In January 2022, the company entered compulsory liquidation proceedings due to insurmountable financial difficulties and allegations of fraud. Chinese authorities found that Evergrande had inflated its revenues of as much as $78 billion in the 2019 and 2020 budgets.
In this context, PwC, a leading global accounting firm, has conducted the audit Evergrande for nearly 14 years, until early 2023. During this long period, authorities discovered that the accounting firm, through its Guangzhou branch, was aware of serious errors in Evergrande's financial statements but chose to ignore them. Not only did it fail to correct the inaccuracies, but it also issued reports that contributed to hide the truth on the real financial situation of the company.
A historic fine for PwC
In response to these serious shortcomings, the China Securities Regulatory Commission (Csrc) and the Ministry of Finance have inflicted a fine on PwC record penalty, confiscating 27,7 million yuan in revenue from Evergrande's audit and imposing an additional fine of 297 million yuan. In addition, the license of the Guangzhou branch was revoked and PwC will be banned from auditing in China for the next six months. The fines and ban represent the most severe ban ever imposed on a Big Four accounting firm in the country and come amid a difficult climate for the firm, which has seen an exodus of clients and a series of layoffs in recent months.
PwC admits audit failures in China
The accounting firm admitted that its audit standards in China were “unacceptably low.” The firm said it was “disappointed” with the audit work and had taken significant action, firing six partners and other five staff members involved in Evergrande's review.
Mohamed Pitcher, global chairman of PwC, commented: “The work done by PwC Zhong Tian’s Hengda audit team fell far short of our high expectations and was completely unacceptable. It does not represent who we are as a network and there is no place for such behavior at PwC. We are taking concrete steps to hold the perpetrators accountable and launching a comprehensive remediation program to strengthen our China subsidiary.”
PwC's China branch is one of the firm's largest international operations and employs around 18 people. The suspension and sanctions have had a significant impact, leading to the perdita of some customers in China and creating uncertainty for the company's future in the region.
