The latest news on June 1, 2024 reported that Evergrande Real Estate and its former chairman Xu Jiaying were fined to the maximum penalty for inflating income and fraudulently issuing bonds. PricewaterhouseCoopers, the auditing firm of Evergrande Real Estate, was also implicated in the case. Recently, PricewaterhouseCoopers has lost multiple major auditing contracts, with financial institutions, state-owned enterprises listed on the stock market, and other major clients canceling their cooperation in a short period of time.
On May 31, the China Securities Regulatory Commission issued the harshest penalty to Evergrande Real Estate, imposing a fine of 4.16 billion yuan for fraudulent bond issuance, which is 20% of the funds raised by the company. Additionally, Evergrande Real Estate was fined the maximum penalty of 41.75 billion yuan for violations of disclosure regulations.
Chairman Xu Jiaying was also fined the maximum amount, with a penalty of 47 million yuan and a lifetime ban from the securities market. Seven other executives were collectively fined 21.5 million yuan.
According to First Financial, the severe penalties revealed Evergrande Real Estate’s massive financial fraud of hundreds of billions and fraudulent issuing violations. Industry insiders believe that such a large-scale financial fraud is uncommon in the capital market, and the company, controlling shareholders, and intermediaries are all culpable.
As the auditing firm of Evergrande Real Estate, PricewaterhouseCoopers issued unqualified audit reports for the company’s 2019 and 2020 annual reports during the period of financial fraud.
The China Securities Regulatory Commission stated that investigations into relevant intermediaries are underway to crack down strictly on financial fraud in the securities market.
Bloomberg reported on Thursday, May 30, citing sources, that Beijing is preparing to fine PricewaterhouseCoopers over 1 billion yuan and suspend some of its business operations in China, allegedly due to inaccurate disclosure of auditing issues related to Evergrande Real Estate.
China Petroleum, a major client of PricewaterhouseCoopers, announced on May 30 that it would cancel the agenda for appointing domestic and international accounting firms for the 2024 annual shareholder meeting. Originally, PricewaterhouseCoopers and Ernst & Young Hua Ming were set to be the auditors for the company in 2024.
In addition to China Petroleum, several listed companies have terminated their cooperation with PricewaterhouseCoopers. Currently, at least 19 A-share and 2 H-share listed companies have canceled their partnerships with the firm. The disclosed audit fees of 17 companies alone exceed 200 million yuan.
The exact reasons for these companies changing their auditors from PricewaterhouseCoopers to other firms were not mentioned in the announcements. Reports suggest that the concentrated termination of contracts by listed companies may be related to PricewaterhouseCoopers’ involvement in Evergrande’s financial fraud.
According to Wind data, in 2023, PricewaterhouseCoopers audited a total of 107 A-share clients, with total audit fees exceeding 800 million yuan, primarily from clients in the financial, telecommunications, and engineering industries. The top ten clients included three from the financial sector such as Bank of China, China Life Insurance, and China Pacific Insurance, and three state-owned enterprises including China Telecom, China Petroleum, and China Railway Construction, as well as Shanghai Pharmaceuticals, Shanghai Electric, Century Huatong, and SF Holdings, among other large listed companies.
PricewaterhouseCoopers is one of the four largest accounting firms globally along with Deloitte, KPMG, and Ernst & Young. These “Big Four” accounting firms, which have previously assisted Chinese companies in listing on U.S. exchanges, are now becoming targets of the Chinese Communist Party’s crackdown.
Economist David Huang, currently residing in the United States, stated in an interview with Epoch Times that there are various reasons why the Chinese Communist Party is targeting these accounting firms that had once assisted China. He mentioned that the assistance provided by the “Big Four” to Chinese companies was a double-edged sword. While it was used in the past to evade scrutiny by the U.S. Securities and Exchange Commission and facilitate Chinese companies’ listings in the U.S., it also led to the loss of state assets in China.