backOn September 13, 2024, the Chinese Ministry of Finance and China Securities Regulatory Commission announced administrative penalties against PricewaterhouseCoopers Zhong Tian LLP (“PwC China”) including a 6-month suspension of its business, and closure of PwC China’s Guangzhou branch in connection with PwC China’s 2018 through 2020 year-end audits of the financial statements of Hengda Real Estate, the principal subsidiary of Evergrande Real Estate (“Evergrande”). The Chinese regulatory authorities found that PwC China and its Guangzhou branch knew that there were major misstatements in Evergrande’s financial statements and issued inappropriate and false audit reports. The Chinese regulatory authorities identified multiple audit failures related to, among others, the design and implementation of audit procedures, premature revenue recognition, improper adjustments to accounting entries to inflate profits, failure to disclose major litigation and arbitration matters, and an overall lack of professional skepticism. The Chinese authorities further noted that PwC China lacked independence with respect to Hengda during the performance of its audits.
The penalties levied against PwC China included a China Securities Commission fine of 325 million yuan and confiscation of illegal gains, a Ministry of Finance fine of 116 million yuan and confiscation of illegal gains, and Ministry of Finance suspension of PwC China’s business for 6 months, as well as closing of the Guangzhou branch. In addition, the Ministry of Finance revoked the CPA certificates of four signing accountants on the audit reports for the relevant financial statements, as well as seven CPAs who participated in the preparation of the financial statements.
In response to the press release, the PwC network issued a statement saying, “[w]e 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,” and emphasized, “PwC [China] cooperated fully with its regulators, respects their decisions, and will fully comply with the administrative penalties,” and 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.”
A copy of the Ministry of Finance’s Press Release can be found here. A copy of the China Securities Regulatory Commission’s Press Release can be found here. Google translations of both Press Releases can be found here and here.
A copy of the PwC Network statement on PwC China Evergrande matter can be found here.