Chinese regulators on Friday suspended PwC’s audit unit in mainland China for six months and fined it a record 441 million yuan ($62 million) over the company’s Troubled property developer undergoes audit. China Evergrande Group.
The China Securities Regulatory Commission strongly condemned the Big Four accounting firms, saying that its investigation found that PricewaterhouseCoopers Zhongtian Accounting LLP (Special General Partnership) committed fraud against Evergrande when it audited the annual results of Evergrande’s flagship domestic subsidiary Evergrande Real Estate. Turning a blind eye” or even “conniving” real estate – 2019 and 2020.
“PwC has seriously eroded the legal foundation and integrity foundation and harmed the interests of investors,” the China Securities Regulatory Commission said in a statement.
Chinese authorities have been scrutinizing PwC’s role in Evergrande’s accounting practices since the China Securities Regulatory Commission accused Evergrande of irregularities in March. $78 billion fraud Two years to 2020.
As of early 2023, PricewaterhouseCoopers has audited Evergrande for nearly 14 years.
The suspension and fine are the most severe penalties ever imposed on China’s Big Four accounting firms, and they come at customer exodus and layoffs Worked for the company in recent months.
The move will cloud PwC’s prospects in the world’s second-largest economy. PwC Zhongtian, PwC Zhongtian, PwC’s CPA firm and main onshore arm in China, is China’s highest-paid auditor in 2022, according to the latest official data.
“The reputational costs are huge, affecting the ability to obtain new business beyond fines. In the short term, PwC’s market share in China will decline, while the other three audit firms will benefit,” says Asia Pacific’s Gary Ng said.
As part of the penalty, PwC Zhongtian will be banned from signing certain key documents such as performance and IPO applications for mainland Chinese clients for the next six months.
The suspension of operations will also affect the unit’s ability to accept new state-owned or domestically listed clients over the next three years in compliance with Chinese regulations.
Last year, domestic regulators reiterated that state-owned enterprises and mainland Chinese listed companies should be “extremely cautious” when hiring auditors who have been subject to regulatory fines or other penalties in the past three years.
PwC Network, a global alliance of PwC members, said in a statement: “We are disappointed with PwC Zhongtian’s audit of Evergrande, which was lower than what we have done with members of the PwC network. The standards expected of the company are unacceptable.
The company said that as part of “accountability and remedial actions”, PwC China senior partner Daniel Li has resigned and the firm’s global risk and regulatory leader Hemione Hudson has resigned replace him.
“Condoned fraud”
China’s Ministry of Finance (MOF) ordered a suspension of operations and ordered the closure of PwC’s Zhongtian Guangzhou office – which sources said led Evergrande’s audit.
The Ministry of Finance also fined Evergrande 116 million yuan for its audit failures in 2018, according to a statement from the Ministry of Finance.
The China Securities Regulatory Commission said in a statement that it had fined PricewaterhouseCoopers Zhongtian 325 million yuan, which is close to the total amount of penalties imposed on more than 50 auditors by the regulator in the past three years.
The China Securities Regulatory Commission’s investigation found that 88% of PwC’s observation records on Evergrande real estate projects in 2019 and 2020 were untrue or untrue, making its audit working papers “seriously unreliable.”
The regulator noted that PwC’s on-site inspections of developers’ properties failed to identify problems and that some residential properties that auditors deemed ready for home delivery remained “vacant land” when subsequently inspected by the SFC.
PwC also deliberately excluded Evergrande’s objects marked as “not allowed to be visited” from the audit sample.
The China Securities Regulatory Commission stated in a statement that PwC covered up and even condoned Evergrande’s financial fraud and fraudulent issuance of corporate bonds to a certain extent. “(PwC) must be punished severely in accordance with the law.”
A Reuters calculation based on filings shows that more than 50 Chinese companies have Cease to act as auditor of the company or cancel plans to hire the employee after launching a regulatory investigation into the company.
In March, PwC had about 400 Chinese clients, including technology giants, listed domestically or in offshore markets such as Hong Kong or New York. Alibaba and Tencent.
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