PwC China Hit with Six-Month Business Ban and Massive Penalty Over Evergrande Audit

Chinese regulators are likely to impose a six-month business suspension on a significant portion of PricewaterhouseCoopers' auditing unit in mainland China as a penalty for its work with troubled property developer Evergrande, according to sources.

The business ban is expected to target PwC Zhong Tian LLP, the registered accounting entity and main onshore arm of PwC in China, said the sources, who have knowledge of the matter but requested anonymity due to the confidential nature of the information.

The six-month suspension is anticipated to affect PwC Zhong Tian’s securities-related business, impacting the firm's work with clients including listed companies, firms preparing for IPOs and investment funds on the mainland, according to the sources.

This will be accompanied by a fine expected to be at least 400 million yuan (Dh56 million), said three of the sources. Combined with the business suspension, it would represent the most severe penalty ever imposed on a Big Four accounting firm in China, the sources added.

The PwC penalties, which are primarily managed by China's Ministry of Finance (MOF), the principal regulator of accounting firms in the country, are yet to be finalised, said one of the sources.
"Given this is an ongoing regulatory matter, it would not be appropriate to comment," a PwC spokesperson said in a statement.

PwC has been under regulatory scrutiny for its role in auditing China Evergrande, since the troubled property developer was accused in March of a $78 billion fraud. PwC audited Evergrande for almost 14 years until early 2023.

The Financial Times first reported on Thursday that PwC China anticipated a six-month business ban by Chinese authorities as early as September.

Bloomberg reported in May that the firm faces a record fine of at least 1 billion yuan (Dh140 million).

The impending PwC penalties have led to an exodus of clientele and prompted cost cuts and layoffs at the firm in recent months, sources have said, casting a shadow over the firm's prospects in the world’s second-largest economy.

As part of the penalties, PwC will be barred from signing off on certain key documents for clients in mainland China, such as results and IPO applications, as well as from performing other securities-related services, the sources said.

The business suspension could also impact PwC Zhong Tian as a whole, preventing it from taking on new state-owned or listed clients over the next three years, in accordance with Chinese regulations.

Last year, domestic regulators reiterated that state-owned firms and listed companies should be "extremely cautious" about hiring auditors that have received regulatory fines or other penalties in the past three years.

In March of last year, Deloitte's Beijing branch was fined 211.9 million yuan by Chinese authorities and its operations were suspended for three months after serious deficiencies were found in its audit of China Huarong Asset Management.

For any enquiries or information, contact ask@tlr.ae or call us on +971 52 644 3004. Follow The Law Reporters on WhatsApp Channels.