PwC China has been fined RMB 441 million ($62 million) and banned from conducting securities-related business for six months.
This penalty comes from audit failures tied to Evergrande, the property developer whose financial collapse has caused ripples in China’s real estate and economic sectors.
The punishment is seen as a warning to other international firms operating in the country, with Beijing stepping up its regulatory enforcement against foreign auditors, particularly the Big Four (PwC, Deloitte, Ernst & Young, and KPMG).
Context of the Fine
The fine and ban imposed on PwC’s Beijing office were announced in response to its failure to audit Evergrande’s financial statements properly.
Chinese regulators stated that PwC approved Evergrande’s accounts despite inflated revenue numbers.
These errors occurred in the two years leading up to Evergrande’s eventual default in 2021 when the company was revealed to have overstated its mainland revenues by nearly $80 billion.
Evergrande’s financial troubles have been a key factor in China’s ongoing real estate crisis, contributing to a wider economic slowdown and shaking investor confidence domestically and abroad.
The Penalty Compared to Deloitte’s Case
This action against PwC is harsher than the penalties imposed on Deloitte last year. In 2023, Deloitte was fined $31 million and banned for three months for audit deficiencies related to its work with China Huarong Asset Management, one of the country’s biggest bad debt managers.
By fining PwC a figure double the amount Deloitte faced and extending the ban period to six months, Chinese regulators are sending a strong signal that international firms must rigorously adhere to local standards
Implications for PwC and Other International Firms
For PwC, the ban represents a serious operational and reputational setback in China, a market of increasing importance to global accounting firms.
The Evergrande crisis has led to significant economic repercussions, as construction projects were halted, homebuyers were left in limbo, and creditors have scrambled to recover their investments.
China’s property sector is responsible for a large portion of the country’s GDP, so the fallout from Evergrande’s collapse has been widely felt. This crisis has also prompted tighter regulations aimed at reining in risky borrowing practices within the sector.
Looking ahead, this incident may trigger further reforms in the auditing and corporate governance sectors, to prevent similar failures in the future.
