Involved in Evergrande financial scandal, a "big boss" in the US auditing industry receives a record fine in China

PwC Zhong Tian, ​​the Chinese auditing unit under the Big 4 auditing giant PricewaterhouseCoopers LLP, has just received a record fine of 441 million yuan ($62.16 million) and a 6-month ban from conducting audits for its involvement in the audit of real estate corporation China Evergrande Group.

PwC Zhong Tian is also the top earner among audit firms in mainland China, with revenue of 7.9 billion yuan (about 1.1 billion USD) in 2022. (Source: Bloomberg)

The punishment is the harshest China has ever imposed on an auditing firm and is part of Beijing's efforts to tighten financial regulations to improve market integrity, analysts say.

PwC Zhong Tian is also the top earner among audit firms in mainland China, with revenue of 7.9 billion yuan (about $1.1 billion) in 2022. That same year, PwC Zhong Tian audited about 400 companies listed in Shanghai, Shenzhen, Hong Kong (China) or New York.

According to a statement posted on the website of China's Ministry of Finance on September 13, PwC Zhong Tian failed to assess Evergrande's true financial situation and false accounting figures from 2018 to 2020.

Since then, the country's Ministry of Finance has fined PwC Zhong Tian 325 million yuan for its 2019 and 2020 errors - 10 times its revenue - and 116 million yuan for its 2018 audit errors - five times its revenue.

PwC Zhong Tian, ​​a Shanghai-registered company and part of PwC's global network, provided audit services to Evergrande Group for more than a decade until the partnership ended in January 2023 due to disagreements over audit matters.

The China Securities Regulatory Commission said in March 2024 that Evergrande's subsidiary, Hengda Real Estate, inflated revenue by 564 billion yuan in 2019-2020 and profits by 92 billion yuan in subsequent years, leading to the "fall" of China's leading real estate group.

The agency also suspended PwC Zhong Tian for six months and revoked the registration certificate of its branch in Guangzhou, where China Evergrande is headquartered. It also revoked the registration certificates of four auditing firms that signed the books for China Evergrande; and warned and fined seven other firms that participated in the auditing process.

PwC has fired six partners and five staff directly involved in the audit. "The work performed by PwC Zhong Tian's Hengda audit team fell short of our high expectations and is completely unacceptable," Mohamed Kande, PwC's global chairman, said in a statement.

PwC has implemented a recovery plan to “build a stronger PwC China firm for the future,” Mr. Kande said.

“China remains an important part of the PwC network and I remain confident in the Group’s partners and employees here as we work together to rebuild trust with our stakeholders,” he added.

Observers said the penalties imposed on PwC were more severe than those imposed on Deloitte Hua Yong, which was fined 212 million yuan in March last year and banned from operating in its Beijing branch for three months for auditing errors involving bad debt manager China Huarong Asset Management in 2014 and 2019.

PwC Zhong Tian notified its clients of the upcoming penalty last month, a source said.

"Beijing wants to send a strong message to warn auditing firms in their role as gatekeepers to maintain the quality of information disclosure by listed companies," said Edmund Wong, an industry expert.

The hefty fine and ban on PwC, as well as the fine on Deloitte last year, show that regulators want to maintain a system of high-quality auditing standards, he added.

In January 2024, the High Court in Hong Kong (China) forced Evergrande to liquidate its assets to pay off a huge debt of 300 billion USD after some creditors ran out of patience due to the lack of progress in the company's debt restructuring process.

China's Ministry of Finance also said it would continue to support the Hong Kong regulator's investigation into PwC's unit in the special administrative region regarding Evergrande's auditing work outside mainland China.

Hong Kong's Accounting and Financial Reporting Council (AFRC) launched a separate investigation into PwC's audit work related to Evergrande's 2020 accounts in October 2021. The investigation is "ongoing," AFRC said in a statement.

Source: https://baoquocte.vn/dinh-liu-be-boi-tai-chinh-evergrande-mot-dai-gia-sung-so-nganh-kiem-toan-my-nhan-an-phat-ky-luc-tai-trung-quoc-286174.html