China Fines PwC $62 Million and Suspends Operations Over Role in Evergrande Collapse

Chinese regulators have imposed a record fine of 441 million yuan ($62 million) and a six-month business suspension on PwC’s auditing arm in mainland China for its role in the financial mismanagement of property giant China Evergrande Group. The fine, announced on Friday, is the largest penalty ever levied against a Big Four accounting firm in China.

According to the China Securities Regulatory Commission (CSRC), PwC Zhong Tian LLP, the firm’s China unit, failed to expose and even aided Evergrande’s financial fraud while auditing the accounts of its onshore subsidiary, Hengda Real Estate, in 2019 and 2020. The regulator emphasized that PwC’s actions had “eroded the basis of law and good faith” and compromised the interests of investors.

The fallout comes amid the ongoing investigation into Evergrande, which is embroiled in a $78-billion fraud scandal. Chinese authorities accuse the developer of deceptive financial practices spanning two years. PwC’s failure to uncover these irregularities has led to serious repercussions for the auditing firm, including the resignation of PwC China’s senior partner Daniel Li. Hemione Hudson, the global risk and regulatory leader of PwC, has since taken over.

The Ministry of Finance also fined PwC Zhong Tian 116 million yuan ($16 million) for its flawed audit of Hengda Real Estate in 2018. In addition to the financial penalties, the CSRC confiscated 27.7 million yuan in revenue that PwC earned from its work with Evergrande.

This regulatory crackdown has significantly impacted PwC’s business in China. The firm has seen a growing exodus of clients, including state-owned enterprises and major financial institutions like Bank of China. By March 2024, over 50 Chinese firms had either dropped PwC as their auditor or canceled planned partnerships with the firm.

PwC has expressed disappointment in the audit failings of its China unit, acknowledging that the firm fell short of the expected standards. The penalties are expected to further cloud PwC’s position in China, where it was the top-earning auditor in 2022.