Chinese authorities have imposed a record-breaking 441 million yuan (£47 million) fine and a six-month business suspension on PwC’s China arm over its flawed audit of Evergrande, the property developer that collapsed under massive debt. The Ministry of Finance and the China Securities Regulatory Commission found PwC Zhong Tian guilty of issuing false audit reports for Evergrande’s financial statements in 2019 and 2020.
PwC’s Chinese division, one of its largest international businesses, had audited Evergrande for 14 years. However, investigations revealed that PwC failed to highlight significant misstatements in the company’s finances, including inflated revenues and misclassifications of debt, contributing to Evergrande’s overstated earnings by £63 billion. As a result, Evergrande was hit with a separate £470 million fine earlier this year, and its founder, Hui Ka Yan, faced detention and a personal fine.
Beijing’s regulators confiscated the £2.3 million PwC earned from its Evergrande audits and imposed a separate £25 million penalty. "PwC seriously eroded the basis of law and good faith, damaging investors' interests," stated the China Securities Regulatory Commission. The Ministry of Finance added that PwC’s audit procedures for Evergrande’s revenue were "seriously flawed" and lacked professional skepticism, failing to identify the company’s misrepresentation of equity as debt.
PwC has since taken internal measures, firing six partners and announcing the departure of five other employees directly involved in the Evergrande audits. Mohamed Kande, PwC's global chair, expressed disappointment in the audit team's performance, calling it "completely unacceptable" and committing to rebuilding trust in China through a comprehensive remediation program.
PwC had anticipated regulatory penalties due to its role in the Evergrande scandal, but the six-month business ban and hefty fine underscore the growing scrutiny over auditing practices in China, particularly involving large firms. The Evergrande crisis has sent shockwaves through the global real estate market, and PwC's mishandling of the audits further complicates the firm's position in China.
