On Friday, the China Securities Regulatory Commission (CSRC) and the country's Ministry of Finance fined PwC China a record $62 million and banned the firm for six months for having “concealed or even condoned” fraud at collapsed property developer Evergrande.
The regulators found that PwC China's Guangzhou branch failed to report "major mistakes" it had found in Evergrande's accounts from 2018 to 2020. PwC China's audit work was described as having "severe flaws," with 88% of audit records not reflecting the true state of Evergrande's projects. "PwC's behaviour goes beyond mere auditing failure, they concealed or even condoned the financial fraud and fraudulent issuance of corporate bonds," the CSRC said.
PwC admitted that its audit work for Evergrande was "unacceptably below" expected standards, firing 11 staff, including six partners, in response. Daniel Li, PwC China's senior partner, stepped down due to his previous role as head of assurance. Hemione Hudson, a UK senior partner, will temporarily take charge of PwC China.
The Ministry of Finance said that it would extend its investigation to the firm's Hong Kong unit, and that the Guangzhou branch had been ordered to shut down. The finance ministry also revoked the accounting licenses of four PwC staff involved with Evergrande's financial statements and fined seven others.
PwC has lost about two-thirds of its Chinese mainland-listed clients in amid the Evergrande controversy, including Bank of China, one of the firm's largest clients. Despite the ban, PwC is working to reassure clients, including Alibaba and Tencent, that it can complete 2024 audits.
In 2023, Starling Insights published "Renal Failure: A Crisis in Audit Culture?," a Deeper Dive report discussing the importance of audit quality to a well-functioning economy and society.
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