PwC’s auditing division in China faces a six-month suspension following its involvement in the collapse of the property giant Evergrande. The renowned accountancy firm is set to incur fines exceeding $62 million as Chinese regulators assert that PwC contributed to concealing fraudulent activities at Evergrande.
In January, Evergrande collapsed under substantial debt, stirring significant concerns in the real estate sector. PwC acknowledged that its auditing work did not meet the firm’s expected standards, expressing regret for the consequences faced by its clients.
Chinese authorities are holding PwC accountable, stating that the firm was aware of significant inaccuracies in Evergrande’s financial reports during its audit. Consequently, the Ministry of Finance has enacted “administrative penalties,” halting operations for PwC ZhongTian, the auditing branch, for six months. Other PwC services in China that do not involve auditing remain unaffected by this suspension.
Additionally, China’s securities regulator has confiscated the revenue PwC made from auditing Evergrande and has proposed additional fines. An investigation concluded that PwC “seriously eroded the basis of law and good faith, damaging investors’ interests.”
In light of the penalties, PwC has initiated several corrective measures, including the dismissal of six partners and a commitment to financially penalize responsible team leaders. Five additional staff members have also exited the firm, and a new interim leader has been appointed to oversee the Chinese auditing unit.
PwC confessed that its audit of Evergrande fell significantly short of the firm’s professional standards. The global chair stated that the actions taken reflect the firm’s commitment to accountability, aiming to restore confidence among stakeholders.
Reiterating its dedication to clients, PwC China expressed regret for the situation and is focused on regaining trust through diligent efforts. Following its rapid expansion into various sectors and across multiple cities in China, Evergrande’s financial troubles culminated in its liquidation this past January. The company and its founder face serious accusations of inflating revenues by an estimated $78 billion, leading to further financial sanctions against both the business and its leadership.
