The auditor PwC China has reportedly told clients that it expects to receive a six-month ban from Chinese authorities, and potentially a large fine, as a punishment for its role in auditing the collapsed property developer Evergrande.
PwC expects to be banned from conducting regulated activities in China, such as signing off on financial results, for six months starting in September, the Financial Times reported.
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 almost $80bn (£61.6bn) in 2019 and 2020. Evergrande was ordered to pay a $580m fine for the alleged fraud. Its founder, Hui Ka Yan, was detained by the authorities in September and ordered to pay a $6.5m fine.
Evergrande’s downfall led to scrutiny of PwC China, which had audited the property developer’s accounts for 14 years until 2023.
The FT cited an unnamed former partner at PwC, which has more than 20,000 employees in mainland China, as saying: “The current partners are braced for impact.”
PwC China is the most prominient of the “big four ” accounting firms, a term that includes Deloitte, KPMG and EY, operating in China. In 2022, it generated nearly 8bn yuan in revenues, according to the Chinese Institute of Certified Public Accountants.
However, in recent months, amid heightened scrutiny of PwC China’s links to Evergrande, the auditor has been shedding clients. This week, its biggest mainland China-listed client, Bank of China, said it planned to switch to EY. China Life Insurance, China Telecom and PICC have also dropped PwC as a client, according to Reuters.
The regulatory action on the horizon for PwC China is expected to eclipse the punishment received last year by Deloitte, which paid a $31m fine and was suspended for three months in relation to its audit of China Huarong Asset Management.
State-owned companies in China are generally banned from hiring auditors within three years of an auditor receiving a significant regulatory punishment. In February last year it was reported that Beijing had instructed state-owned companies to phase out contracts with the big four accounting firms, as authorities tried to address security concerns and curb the influence of western-linked auditors.
PwC China said: “Given this is an ongoing regulatory matter, it would not be appropriate to comment.”
