Hong Kong’s financial regulator said there was no evidence to support whistleblower allegations against PwC, which has been embroiled in a series of scandals linked to the now-liquidated China Evergrande Group.
The Accounting and Financial Reporting Council (AFRC) said in a statement on Wednesday that after reviewing PwC’s internal investigation, it concluded that the evidence did not support three of the allegations relating to the accounting firm’s quality controls.
According to the AFRC, no evidence was found to support allegations that PwC failed to establish and maintain effective quality controls, failed to adhere to professional standards in relation to its client relationship with Evergrande, and failed to place appropriate personnel in key positions.
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The allegations were made in an anonymous whistleblower letter that circulated on social media in April. PwC refuted the allegations in the letter.
A building housing the PwC branch is seen behind a Chinese national flag in Beijing. Photo: Reuters alt=A building housing the PwC branch is seen behind a Chinese national flag in Beijing. Photo: Reuters>
However, the regulator noted that a separate investigation into the quality of PwC’s audit work on Evergrande is still ongoing.
“The AFRC has made this announcement in light of the seriousness of the public allegations, the potential impact on public confidence in the integrity of the accounting profession and the public interest involved,” the statement said.
The statement comes after more than 30 listed companies in China, including major conglomerates such as PetroChina and Bank of China, terminated their contracts with the auditor over concerns about the auditor’s possible involvement in Evergrande’s financial fraud.
Evergrande, which has been declared bankrupt by a Hong Kong court, had inflated its revenue by $78 billion in the years leading up to its 2021 collapse, China’s securities regulator said in March.
In a rare show of confidence, tech giant Alibaba Group Holding, which owns the Post, said last week that it plans to appoint PwC as its auditor through 2025. Alibaba paid PwC a total of 148 million yuan (US$20.3 million) in audit fees in fiscal 2024, a 26 percent increase, the company’s annual report showed.
Still, the loss of major clients is taking its toll on PwC. Bloomberg reported Wednesday that the accountant is laying off “at least 100” employees across divisions and locations in China amid a drop in revenue prospects.
Meanwhile, amid the collapse of Evergrande and the nationwide real estate crisis, Chinese authorities are tightening their supervision of financial “intermediaries”, focusing in particular on the “big four” accounting firms: Deloitte, EY, PwC and KPMG, Reuters reported on Wednesday.
This article originally appeared in the South China Morning Post (SCMP)the most authoritative voice covering China and Asia for over a century. For more SCMP stories, explore the SCMP app or visit the SCMP’s Facebook And Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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