China is preparing to levy a record fine on PricewaterhouseCoopers LLP (PwC) and suspend some of its local operations due to its involvement in one of the country’s largest alleged financial fraud cases, according to sources familiar with the situation.
The Ministry of Finance (MoF) may announce the penalties against PwC as early as this week for its auditing work with China Evergrande Group, sources said, requesting anonymity as the matter is private. PwC faces a fine of at least 1 billion yuan ($138 million), surpassing the previous record fine of 212 million yuan imposed on Deloitte Touche Tohmatsu Ltd. in 2023.
The penalties could also include a suspension of operations at some of PwC’s mainland offices, although the decision is not final and details may change, the sources added. Both the MoF and PwC declined to comment when approached by Bloomberg.
PwC has been under scrutiny following China’s investigation into the Evergrande scandal, one of the largest financial fraud cases in history. Earlier this year, authorities fined Evergrande 4.18 billion yuan and revealed that its main unit, Hengda, had overstated revenue by 564 billion yuan from 2018 to 2020.
In recent months, PwC has lost several major Chinese clients, including China Taiping Insurance Holdings Co., China Merchants Bank Co., and People’s Insurance Company (Group) of China Ltd., adding to over a dozen firms it has ceased auditing in the past two years.
These developments come as President Xi Jinping intensifies efforts to mitigate financial risks and combat financial crime to stabilize China’s economy. At a recent Politburo meeting, Xi urged financial regulators and local governments to enforce new rules and enhance financial oversight.
PricewaterhouseCoopers Zhong Tian LLP, a Shanghai-registered firm within PwC’s global network, audited Hengda during the period in question and served as Evergrande’s auditor for over a decade until resigning in January 2023 due to audit-related disagreements. PwC was widely used by Chinese real estate firms listed in Hong Kong, including major developers like Country Garden Holdings Co. and Sunac China Holdings Ltd., before they defaulted on their debt.
PwC’s mainland Chinese arm, employing over 1,600 certified accountants, reported revenue of 7.9 billion yuan ($1.1 billion) in 2022, leading among over 9,000 local competitors. This revenue is a fraction of PwC’s global revenue of $50.3 billion in the same year.
PwC has faced challenges in other regions as well. In Hong Kong, the Financial Reporting Council expanded its investigation into PwC’s audit of Evergrande’s 2020 financial statements. In Australia, PwC pledged to improve governance controls following a conflict of interest scandal involving leaked government tax plans. Additionally, its UK network was fined £5.6 million for audit failures related to Babcock International Group Plc.
These actions underscore the growing scrutiny PwC faces globally, particularly regarding its auditing practices and governance.
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