Global consultancy PwC is being suspended from conducting business in mainland China, according to a statement published on September 13 by China's Ministry of Finance.
The China Securities Regulatory Commission (CSRC) has fined PwC Zhong Tian, PwC's mainland China accounting entity which is part of PwC's global network, a total of Rmb325 million ($45.8 million) for breaches of securities law, and the Ministry of Finance fined the consultant a further Rmb116 million, according to the statement.
11 accountants at PwC were cited as breaking rules, with four who signed the audits given penalties, and a further seven given warnings or fines.
The action came after significant audit failures at Hengda Real Estate, a subsidiary of Evergrande, which was found to have inflated its revenues by around Rmb214 billion in 2019 and by a further Rmb350 billion in 2020.
The Ministry of Finance statement said that a major issued found from the investigation was: untruthful revenue-related conclusions during 2018-2020 in the auditing report; a “loss of independence' in helping Hengda in exaggerating profits; ignored the fact that Hengda is short of cash and cash equivalent; ignored an exaggeration in developing costs in 2020; did not discover disguised debt in Hengda's fundraising structure.
The Hong Kong High Court placed Evergrande into liquidation in January 2024. PwC had been one of the largest auditors in China but over the last six months many companies have dropped PwC as their auditor.
A September 13 statement on PwC’s website said: “We are disappointed by PwC Zhong Tian’s audit work of Hengda, which fell unacceptably below the standards we expect of member firms of the PwC network.”
The statement said that PwC Zhong Tian cooperated fully with the regulators and "respects their decisions and will fully comply with the administrative penalties". The statement added that PwC China and its governance board, with support from the PwC network, have taken "a number of accountability and remedial actions to address this matter."
This included that it had "terminated the employment of six partners" and “exited five staff” directly involved in the Hengda audit work.
Daniel Li has agreed to step down as PwC China’s territory senior partner (TSP), given his former responsibilities as PwC China’s head of assurance. He will continue to support the business in his role as chief accountant of PwC Zhong Tian.
Hemione Hudson, PwC’s global risk & regulatory leader, has been appointed to serve as the interim TSP and will relocate once the steps required to effect her transfer to PwC China have been completed. Kevin Wang, head of assurance, will have an elevated role leading the audit and assurance business for PwC China.
Mohamed Kande, global chair PwC, said in the statement: “The work performed by PwC Zhong Tian’s Hengda audit team fell well below our high expectations and was completely unacceptable. It is not representative of what we stand for as a network and there is no room for this at PwC.”
Kande added: “That is why, following a thorough investigation, we ensured that actions were taken to hold those responsible to account and a comprehensive remediation programme will build a stronger PwC China firm for the future. China remains an important part of the PwC network and I remain confident in the China firm’s partners and staff as we work together to rebuild trust with stakeholders.”
