PwC expects six-month ban in China for Evergrande audit

PricewaterhouseCoopers LLP’s China unit expects the Chinese government to hand down a six-month ban as part of punishment over its audit of failed property giant China Evergrande Group, according to a person familiar with the matter. 

The announcement is expected to be made within weeks, the person added, requesting not to be named because the matter is private. 

PwC has been under the spotlight after China launched one of the biggest investigations of financial fraud in history. Authorities said developer Evergrande’s main onshore unit Hengda overstated its revenue by 564 billion yuan ($79 billion) in the two years through 2020. 

China is weighing a record fine of at least 1 billion yuan on PwC that would be the biggest for auditors operating in the country, people familiar told Bloomberg in May. South China Morning Post reported Thursday that the fine could be up to 500 million yuan, along with a ban on taking on new clients and signing off accounts of mainland-based firms. 

If the penalty is handed down, it’s expected to stop PwC China from signing off on financial results, restructurings and initial public offerings, based on previous cases. PwC declined to comment on Thursday.

PricewaterhouseCoopers Zhong Tian LLP, a Shanghai-registered firm that is part of PwC’s global network, was Hengda’s auditor during the period in question. PwC was Evergrande’s auditor for more than a decade until the global accounting firm resigned in January 2023, due to what the developer said were audit-related disagreements. 

Among the Big Four accounting firms, PwC was one of the most commonly used by Chinese real estate firms listed in Hong Kong, according to data compiled by Bloomberg.

More than 30 publicly listed firms based in mainland China, including state-owned giants Bank of China Ltd. and PetroChina Co., have dropped PwC as their auditor this year. Most of the changes happened after the firm came under scrutiny for its role in an alleged accounting fraud at property developer China Evergrande. 

PwC still counts some of China’s biggest internet companies including Tencent Holdings Ltd., Alibaba Group Holding Ltd., Meituan and Xiaomi Corp. as clients. 

PwC told clients its staff will keep working during the suspension and will be able to certify the audits on 2024 annual reports once the ban is lifted in March, the Financial Times reported earlier.