Regulators in China are likely to impose a six-month business suspension on PricewaterhouseCooper’s auditing unit for their alleged failure to detect a massive fraud at China Evergrande, multiple sources have said.
The ban is expected to be imposed on PwC Zhong Tian LLP, the registered accounting firm and the main onshore arm of PwC in mainland China, as part of punishment for its work on debt-laden property developer Evergrande.
Evergrande, which was said to have debts of about $300 billion, is now undergoing a liquidation process that could last for years. Reuters said its sources had knowledge of the matter but declined to be named as the information was private.
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The six-month ban is expected to focus on PwC Zhong Tian’s securities-related business — which would affect the firm’s work for clients such as listed firms, IPO-bound companies, and investment funds on the mainland, they said.
It will be accompanied by a fine – expected to be at least 400 million yuan ($56 million), three of the people said.
Combined with the business suspension, it would be the toughest ever penalty received by a ‘Big Four’ accounting firm in China, the three people added.
The PwC penalties, which are being mainly handled by China’s Ministry of Finance (MOF), the primary regulator of accounting firms in the country, are yet to be finalised, one of the sources said.
“Given this is an ongoing regulatory matter, it would not be appropriate to comment,” a PwC spokesperson said in statement.
The MOF did not immediately respond to requests for comment.
$78-billion fraud
PwC has been under regulatory scrutiny for its role in auditing China Evergrande Group since the troubled property developer was accused in March of a $78-billion fraud. PwC audited Evergrande for almost 14 years until early 2023.
Chinese regulators are expected to announce PwC’s penalties in the coming weeks, three of the people said.
The Financial Times first reported on Thursday that PwC China expected a six-month business ban by Chinese authorities as early as September.
Earlier reports have suggested that the firm faces a record fine of at least 1 billion yuan ($140 million).
The looming PwC penalties have led to a mass exodus of clients and prompted cost cuts and layoffs at the firm in recent months, sources have said, clouding the firm’s prospects in the world’s second-largest economy.
As part of the penalties, PwC would be barred from signing off on certain key documents for clients in mainland China such as results and IPO applications as well as from carrying out other securities-related services, the sources said.
The business suspension could also affect PwC Zhong Tian, as a whole, from taking on new state-owned or listed clients in the next three years, as per Chinese regulations.
Last year, domestic regulators reiterated state-owned firms and listed companies should be “extremely cautious” about hiring auditors that have received regulatory fines or other penalties in the past three years.
Deloitte’s Beijing branch in March last year was fined 212 million yuan ($31m) by Chinese authorities and the branch’s operations suspended for three months after serious deficiencies were found in its audit of China Huarong Asset Management.
- Reuters with additional editing by Jim Pollard
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