PwC Penalized Amid Evergrande Scandal and Chinese Crackdown

PwC Faces Major Setback in China Amid Evergrande Scandal

For years, PriceWaterhouseCoopers (PwC), the prominent global auditing and consulting firm, held a strong position in China, assisting the nation’s largest corporations in achieving substantial gains, while simultaneously enriching its own coffers. However, the firm now finds itself caught in a significant crackdown orchestrated by Beijing, which jeopardizes its future operations within the country.

On Friday, Chinese authorities announced the suspension of PwC’s operations in China for a period of six months and imposed a hefty fine of $62 million. This penalty is a direct consequence of PwC’s involvement in the extensive financial fraud perpetrated by China Evergrande Group, previously recognized as the nation’s leading real estate developer. The fine, levied by both the Ministry of Finance and the China Securities Regulatory Commission, represents the largest ever imposed by the ministry and is the maximum penalty allowable for an auditor under Chinese law.

The Ministry of Finance stated that PwC was aware of significant misstatements made by Evergrande Real Estate in its financial reports from 2018 to 2020. Despite this knowledge, the firm failed to highlight these discrepancies, ultimately issuing an inappropriate audit opinion and a misleading audit report.

In response to the situation, Mohamed Kande, the global chair of PwC, expressed his dismay, stating, “The conduct of our auditors in China was completely unacceptable.” He affirmed that the company had fully cooperated with Chinese regulators and would adhere to the penalties imposed. “This situation does not reflect our values as a network, and we absolutely do not tolerate such behavior at PwC,” Mr. Kande added.

PwC, one of the esteemed Big Four accounting firms, has come under increasing scrutiny this year as Xi Jinping, the leader of China, has emphasized the necessity for financial oversight with real consequences. In March, Chinese regulators also penalized Evergrande’s founder, Hui Ka Yan, with a fine of $6.5 million and prohibited him from participating in domestic financial markets after he was found to have exaggerated Evergrande’s revenue by more than $78 billion. Additionally, he faced allegations of securities fraud for a two-year period leading up to the company’s collapse.

The New York Times reported last year that dubious accounting practices and inadequate oversight ultimately led to the downfall of Evergrande. The firm had been categorizing funds received for apartments as revenue, even when the apartments had yet to be constructed, as uncovered by the Times.

Evergrande’s default in 2021 triggered a domino effect, resulting in the collapse of numerous property developers across China and sparking a housing crisis that the authorities are still striving to address. Once a symbol of the excesses associated with China’s real estate boom, Evergrande’s demise has unveiled the intricate web of financial interdependencies involving global auditors, local governments, foreign investors, and, for a time, an entire nation of home buyers.

As the repercussions of the housing market crash continue to unfold, Chinese officials are scrambling to address a substantial financial gap that has emerged.

This is a developing story. Please check back for updates.

Contributions to this report were made by Chris Buckley from Taipei, Taiwan, and Zixu Wang from Hong Kong.