PwC’s audit department in China has been suspended for six months and fined 441 million yuan ($62 million) over its audit of now-defunct real estate developer China Evergrande Group.
The fines were imposed by the Ministry of Finance of the People’s Republic of China and the China Securities Regulatory Commission on PwC Zhong Tian LLP, the registered accounting entity of PwC and its primary onshore division in China.
China’s securities regulator has accused PwC Zhong Tian LLP of negligence in the audit of Evergrande’s main onshore division Hengda Real Estate and its bond issuance in 2019 and 2020.
PwC Zhong Tian allegedly overlooked fraudulent activities. The regulator said PwC “turned a blind eye” to Evergrande’s misconduct.
The investigation was launched following allegations in March of $78 billion in fraud at Evergrande spanning two years.
PwC Zhong Tian audited Evergrande for nearly 14 years and ended the partnership in early 2023.
In response to the sanctions, PwC said in its press release: “We are disappointed with the audit work of PwC Zhong Tian (or “PwC ZT”) in Hengda, which fell unacceptably short of the standards we expect from PwC network member firms.
“PwC ZT has fully cooperated with its supervisors, respects their decisions and will fully comply with the administrative sanctions.”
PwC Zhong Tian is now banned from signing essential financial documents for clients in mainland China. The firm is also banned from recruiting new state-owned or listed Chinese stock market clients for three years.
As a result, Daniel Li, senior partner at PwC China, has resigned due to his “former responsibilities” in the audit department.
The company also terminated the employment contracts of six partners and dismissed five employees involved in the Hengda audit work.
The Finance Ministry, which also ordered the closure of PwC Zhong Tian’s Guangzhou office responsible for the Hengda audit, concluded that the company had ignored “material misstatements” and even prepared false audit reports.
The Ministry of Finance imposed an additional fine of US$16.4 million on PwC’s Zhong Tian for auditing errors at Hengda in 2018.
The China Securities Regulatory Commission (CSRC) has fined PwC Zhong Tian $46 million, after the commission highlighted that 88% of the company’s observation data on Evergrande’s real estate projects in 2019 and 2020 was found to be “inauthentic or incorrect”.
The CSRC also criticised PwC for failing to inspect properties thoroughly and for deliberately excluding certain properties from the audit samples.
China Securities Regulatory Commission (CSRC) was cited by Reuters as he said in a statement: “PwC’s conduct goes beyond the mere audit failure. It has to some extent covered up and even condoned the financial fraud and fraudulent issuance of corporate bonds by Hengda Real Estate.”
“PwC Hits Record Fine for Evergrande Audit in China” was originally created and published by International Accounting Bulletina brand of GlobalData.
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