The China arm of the accountancy firm PwC has been banned for six months and fined a total of 441m yuan (£47m) over its audit of the collapsed property developer Evergrande, according to Chinese authorities.
Beijing’s ministry of finance imposed a six-month business suspension on PwC Zhong Tian, the accounting firm’s main division in mainland China, along with a 116m yuan penalty.
China’s securities regulator confiscated the company’s revenue made for its Evergrande audit, totalling 27.7m yuan, and fined it 297m yuan.
The investigation by the China Securities Regulatory Commission centred on PwC’s audit of the property developer’s annual results in 2019 and 2020. “PwC has seriously eroded the basis of law and good faith, and damaged investors’ interest,” the commission said.
In March, Beijing’s securities regulator said that Evergrande, the world’s most indebted property developer before it collapsed in January, had inflated its revenues by $78bn (£59bn) in 2019 and 2020. It imposed a $580m fine on Evergrande. Its founder, Hui Ka Yan, was detained by the authorities in September and ordered to pay a $6.5m fine.
China’s ministry of finance said: “After investigation, it was found that PwC and its Guangzhou branch knew that there were major misstatements in Evergrande Real Estate’s financial statements during the audit of Evergrande Real Estate’s financial statements from 2018 to 2020, but did not point them out, issued inappropriate audit opinions, and issued false audit reports.”
PwC said it was “disappointed by PwC Zhong Tian’s audit work of Hengda Real Estate, Evergrande’s mainland division, which “fell unacceptably below the standards we expect of member firms of the PwC network”.
It said it sacked six partners; a further five staff who were directly involved in the Hengda audit work either left or were fired.
Mohamed Kande, global chair of PwC, said: “The work performed by PwC Zhong Tian’s Hengda audit team fell well below our high expectations and was completely unacceptable. It is not representative of what we stand for as a network and there is no room for this at PwC.
after newsletter promotion
“That is why, following a thorough investigation, we ensured that actions were taken to hold those responsible to account and a comprehensive remediation programme will build a stronger PwC China firm for the future. China remains an important part of the PwC network and I remain confident in the China firm’s partners and staff as we work together to rebuild trust with stakeholders.”
The accounting firm had been expecting the six-month ban and a fine for its role in Evergrande’s alleged fraud. Its Chinese division had audited the property developer’s accounts for 14 years until 2023.