China Hits PwC With Record $62 Million Fine, 6-Month Ban Over Evergrande Audit

People walk past a sign on a window on the exterior of the PWC offices in London, on March 31, 2021. Leon Neal/Getty Images

The Chinese communist regime has fined the accounting firm PwC’s unit in China a record 441 million yuan—about $62 million—and banned it from conducting business for six months because of its involvement in the Evergrande audit.

That total includes a $16.35 million fine imposed by the Chinese Ministry of Finance and a $45.8 million fine from the China Securities Regulatory Commission on PwC Zhong Tian, also known as PwC China, along with a six-month ban and the closure of a PwC branch in Guangzhou.

“PwC’s behavior goes beyond mere auditing failure. It, to a certain extent, covered up and even condoned Hengda Real Estate’s financial fraud and fraudulent issuance of corporate bonds,” said the China Securities Regulatory Commission (CSRC) in a statement. Hengda is Evergrande’s onshore flagship unit.

Evergrande Group is the face of China’s collapsed real estate development industry and the most indebted company in the world. Earlier this year, it became the first of the failing Chinese developers to be ordered to liquidate.

PwC had served as Evergrande’s auditor for 14 years until 2023, including when the developer exaggerated its revenue by $78 billion in one of the biggest financial fraud incidents in history.

For comparison, Enron overstated its profits by $600 million, and its collapse in 2001 led to the downfall of its auditing firm, Arthur Andersen LLP, once one of the “Big Five” accounting firms. Today, PwC, Deloitte, KPMG, and Ernst & Young make up the “Big Four.” From 2010 to 2020, Evergrande paid PwC China nearly $400 million in audit fees, and the firm was the country’s top-earning auditor in 2022, according to the latest official data.

A Reuters calculation based on filings showed that more than 50 Chinese firms have, in recent months, either dropped the firm as their auditor or canceled plans to hire it following the launch of the regulatory investigation into the firm.

The Chinese Ministry of Finance said PwC issued false audit reports and used procedures with serious defects in its Evergrande audit.

Authorities said 88 percent of the records kept by PwC regarding the real estate projects were inconsistent with actual implementation and deemed to be seriously unreliable. In one case, a site reported to have met delivery conditions by on-site investigators was a vacant piece of land.

“The work performed by PwC Zhong Tian’s Hengda audit team fell well below our high expectations and was completely unacceptable,” Mohamed Kande, global chair of PwC, said in a statement on its website. “It is not representative of what we stand for as a network and there is no room for this at PwC.”

PwC China fired six partners and five additional staff members involved in the Hengda audit.

Kande stated that PwC China has fully cooperated with regulators and will comply with the penalties.

Experts have told The Epoch Times that the Evergrande fraud exposed a major flaw in the auditing system: firms are permitted to issue clean opinions for companies while receiving compensation from those same companies, leading to potential conflicts of interest.

The Chinese real estate sector nearly shuttered after the Chinese Communist Party tightened credit policies in 2020. Evergrande became insolvent in 2021 with a 132.6 percent debt-to-asset ratio and owed $336 billion.

PwC did not issue any notice of concern and continued to issue clean opinions for Evergrande.

In October 2021, the Financial Reporting Council began investigating Evergrande and expanded its inquiry in 2022. PwC also issued a clean opinion that year.

In 2023, the firm resigned as Evergrande’s auditor, with the developer citing disagreements over auditing.

Jenny L., Michael Zhuang, Reuters, and The Associated Press contributed to this report.