Auditing giant PricewaterhouseCoopers (PwC) is slashing pay packages of Chinese partners amid growing turmoil over its decade-long work with indebted real-estate developer China Evergrande.
The British auditor is under the lens in China, with Beijing probing its role in the $78-billion fraud by Evergrande, which defaulted on $300 billion worth of debt in 2021 and was ordered to liquidate early this year.
The probe has led more than 30 listed Chinese firms to drop PwC as their auditor in recent months.
Also on AF: PwC Slashes Financial Audit Staff in China After Clients’ Mass Exit
A majority of those clients were state-owned enterprises or financial institutions. They include Bank of China and China Life Insurance, which last year paid accounting fees of nearly 200 million yuan and 64.2 million yuan, respectively, filings show.
PwC is now rushing to cut costs, including by halving the size of its financial services auditing staff in China.
The auditor has also asked its top-earning partners in China to accept their annual income, including base salaries and bonuses, being halved, sources with knowledge of the matter said.
Other PwC partners will see their pay slashed by around 20% to 40%, the sources said.
The firm started notifying partners across its China operations about the pay reductions earlier this month, and the cuts would take effect as soon as next month, one source said.
$1 billion in revenue
PwC has built a substantial presence in China over the last couple of decades as the world’s second-largest economy became more open to foreign investors.
Many Chinese companies also turned to the ‘Big Four’ auditor as they set their sights on listing at home and overseas.
PwC’s onshore arm PwC Zhong Tian LLP had revenues of 7.92 billion yuan ($1.1 billion) in 2022, making it China’s top-earning auditor that year, official figures show.
The firm’s China business interests include auditing, consulting, and tax services. Overall it had 781 partners on the mainland as of last September, according to its website.
Its senior China partners make 5 million yuan ($688,914) or above in annual income, while mid-level partners make compensation of 2-3 million yuan. Average starting pay for junior partners is about 1.5 million yuan, one of the sources said.
Multiple investigations
Some Chinese financial institutions have been cutting the pay of their senior staff in recent months as part of a government “common prosperity” drive that includes austerity measures, but such steep cuts are rare in international firms operating in the country.
The belt-tightening at auditor underscores the challenges it is facing as a result of its work for Evergrande.
PwC had been the debt-laden developer’s auditor for almost 14 years until early 2023.
In April, whistleblowers claiming to be partners at PwC wrote a damning open letter accusing the auditor of turning “a blind eye” to Evergrande’s malpractices for over a decade.
PwC rejected those claims, and, earlier this month, Hong Kong’s financial watchdog Accounting and Financial Reporting Council (AFRC) also said it had not found evidence to support the letter’s accusations.
But AFRC is still investigating PwC Hong Kong’s work for Evergrande, while Chinese regulators are looking into the auditor’s China arm.
- Reuters, with additional editing by Vishakha Saxena
Also read:
China Checking ‘Big Four’ Auditors’ Work After Evergrande Fiasco
Evergrande Liquidators ‘Probing PwC, Others to Recoup Losses’
Chinese Clients Ditching PwC After China Evergrande Fiasco
PwC Probed For ‘Enabling Evergrande Misconduct For Years’
Mortgage Delinquencies in China Soared by 43% in 2023
Evergrande Chief’s Two Luxury Mansions ‘Seized by Creditor’
Evergrande Chief Suspected Of Transferring Assets Offshore: WSJ
China Evergrande Chairman ‘Suspected of Crimes’, Company Says
Hui Ka Yan and The Rise and Fall of China Evergrande
