In a significant blow to PwC’s operations in China, the accounting giant has been banned for six months and slapped with a hefty $62.2 million fine. This move by Chinese regulators comes as a consequence of PwC’s failings in auditing the beleaguered property company Evergrande, a company that has become a poster child for the ongoing debt crisis in China’s real estate sector.
The Chinese Ministry of Finance, in a statement, revealed that PwC, along with its Guangzhou branch, had been aware of major misstatements within Evergrande’s financial statements during their audit. The Ministry levied administrative penalties, including the suspension of PwC’s business for six months and the revocation of its Guangzhou branch’s license.
Meanwhile, China’s top securities regulator imposed additional penalties on PwC, bringing the total fine to 441 million yuan ($62.2 million). The regulator cited PwC’s failure to conduct due diligence and maintain professional skepticism in their work with Evergrande, ultimately failing to uncover the company’s extensive financial fraud.
Responding to the penalties, PwC admitted that its China auditors had fallen short of acceptable standards during their work with Evergrande. In a statement, PwC Global Chair Mohamed Kande stated that the firm had undertaken a thorough investigation and taken action to hold those responsible accountable. He also outlined a comprehensive remediation program aimed at strengthening PwC China for the future. Kande emphasized China’s importance within the PwC network and expressed confidence in the firm’s partners and staff as they rebuild trust with stakeholders.
This recent development follows a lawsuit filed last month by Evergrande liquidators against PwC in Hong Kong. This lawsuit, reported by Bloomberg, aims to recover investments after the property firm’s liquidation, targeting PwC for alleged negligence and misrepresentation in relation to its audits of Evergrande’s financial statements for 2017 and the first half of 2018.
The ban and hefty fine imposed on PwC in China send a strong message about the seriousness of the Chinese authorities’ stance on accounting malpractice and the need for stringent oversight within the country’s financial sector. This case has significant implications for the global accounting industry, highlighting the importance of ethical conduct and due diligence in ensuring financial transparency and accountability.
