Involved in the Evergrande financial scandal, a "big boss" in the US auditing industry received a record fine in China.

PwC Zhong Tian, ​​a Chinese auditing firm belonging to the Big4 auditing giant PricewaterhouseCoopers LLP, has been fined a record 441 million yuan (US$62.16 million) and banned from conducting audits for six months for its involvement in the audit of China Evergrande Group.

PwC Zhong Tian is also the highest-earning auditing firm in mainland China, with revenue of 7.9 billion yuan (approximately $1.1 billion) in 2022. (Source: Bloomberg)

This is the harshest penalty China has ever imposed on an auditing firm to date and is part of Beijing's efforts to tighten financial regulations to improve market integrity, according to analysts.

PwC Zhong Tian was also the highest-earning audit firm in mainland China, with revenue of 7.9 billion RMB (approximately $1.1 billion) in 2022. In the same year, PwC Zhong Tian audited around 400 companies listed in Shanghai, Shenzhen, Hong Kong (China), or New York.

According to a statement posted on the website of the Chinese Ministry of Finance on September 13, PwC Zhong Tian failed to assess the true financial situation and recorded inaccurate accounting figures for Evergrande from 2018 to 2020.

Consequently, the country's Ministry of Finance fined PwC Zhong Tian 325 million yuan for its errors in 2019 and 2020 – ten times the company's revenue – and 116 million yuan for erroneous auditing in 2018 – five times its revenue.

PwC Zhong Tian is a Shanghai-registered firm and part of PwC's global network. It provided audit services to Evergrande Group for over a decade until the termination of the partnership in January 2023 due to disagreements over audit issues.

The China Securities Regulatory Commission stated in March 2024 that Evergrande's subsidiary, Hengda Real Estate, had inflated its revenue by 564 billion yuan in 2019-2020 and profits by 92 billion yuan in subsequent years, leading to the downfall of China's leading real estate conglomerate.

The agency also suspended PwC Zhong Tian's operations for six months and revoked the registration license of its Guangzhou branch, where China Evergrande is headquartered. Simultaneously, it revoked the registration licenses of four auditing firms that signed books for China Evergrande; and issued warnings and fines to seven other firms involved in the audit process.

PwC has dismissed six partners and five employees directly involved in the audit work. "The work performed by PwC Zhong Tian's Hengda audit team fell short of our high expectations and is completely unacceptable," Mohamed Kande, PwC's global chairman, said in a statement.

Mr. Kande said that PwC has implemented a remediation plan to "build a stronger PwC in China for the future."

"China remains an important part of the PwC network, and I have continued confidence in our partners and staff here as we work together to rebuild trust with stakeholders," he added.

Observers believe that the penalties imposed on PwC are harsher than those imposed on Deloitte Hua Yong – a firm that was fined 212 million yuan last March and banned from operating at its Beijing branch for three months due to auditing errors related to its distressed debt management firm, China Huarong Asset Management, in 2014 and 2019.

According to a source, PwC Zhong Tian notified its clients of the upcoming penalty last month.

Edmund Wong, an industry expert, commented: "Beijing wants to send a strong message to auditing firms, who act as gatekeepers to maintain the quality of information disclosure by listed companies."

He added that the hefty fines and operating bans imposed on PwC, as well as the penalty against Deloitte last year, demonstrate that regulators want to maintain a high-quality auditing standard system.

In January 2024, the High Court in Hong Kong (China) ordered Evergrande to liquidate its assets to repay a massive $300 billion debt after some creditors lost patience due to the company's lack of progress in debt restructuring.

The Chinese Ministry of Finance also stated that it will continue to support the Hong Kong authorities' investigation into PwC's audit of Evergrande outside of mainland China.

The Hong Kong Accounting and Financial Reporting Council (AFRC) launched a separate investigation into PwC's audit practices related to Evergrande's 2020 accounts in October 2021. The investigation "is ongoing," the AFRC said in a statement.

Source: https://baoquocte.vn/dinh-liu-be-boi-tai-chinh-evergrande-mot-dai-gia-sung-so-nganh-kiem-toan-my-nhan-an-phat-ky-luc-tai-trung-quoc-286174.html