PwC’s Chinese auditing arm has been suspended from the country for six months over its work on the collapsed Chinese property giant Evergrande. The Big Four accountancy firm is also being fined more than $62m (£47m) after Chinese authorities said it had helped cover up fraud at Evergrande.
The real estate firm collapsed in January under a mountain of debt, leading to a major scandal in the financial world. PwC China admitted that its work on the Evergrande audit had fallen “unacceptably below the standards” expected within the firm and apologized for the impact on its clients.
The Chinese authorities found that PwC knew there were “major misstatements” in Evergrande’s financial statements when it audited the firm. As a result, the Chinese Ministry of Finance has imposed “administrative penalties” and suspended the operations of PwC’s auditing business PwC ZhongTian for six months. Other PwC operations providing non-audit services in China are not affected.
In addition to the suspension, China’s securities regulator has confiscated the revenue PwC earned auditing Evergrande and issued a fine. An investigation by the regulator concluded that PwC had “seriously eroded the basis of law and good faith, and damaged investors’ interest.”
In response to the penalties, PwC said it had taken “a number of accountability and remedial actions,” including the sacking of six partners and the appointment of Hemione Hudson, PwC’s global risk and regulatory leader, to run the Chinese unit on an interim basis. PwC’s global chair Mohamed Kande expressed confidence in the China firm’s partners and staff as they work to rebuild trust with stakeholders.
PwC China issued a statement expressing deep regret and apologizing for the impact the scandal has had on their clients and employees. They pledged to work tirelessly to regain trust.
The collapse of Evergrande, which built property in more than 280 Chinese cities and expanded into other business sectors, has sent shockwaves through the financial world. The Chinese authorities have accused Evergrande and its founder, Hui Ka Yan, of falsely inflating revenues at the firm to the tune of $78bn (£61.6bn) and have imposed fines and bans on him personally as well as the business.
