According to a report by the Financial Times on Wednesday (August 21), PricewaterhouseCoopers (PwC) China has informed its clients that the Chinese authorities are expected to implement a business ban on them as early as September. The ban will last for six months and is one of the punitive measures imposed for their insufficient auditing of the real estate developer Evergrande Group.
Several clients have been cited in the report saying that the ban will prevent PwC from signing off on financial performance and initial public offerings, as well as prohibiting them from conducting other regulated activities.
PwC China stated that they would not comment on the “ongoing regulatory matters.”
In March, the Chinese securities regulatory agency stated that Evergrande had inflated its mainland revenue by $78 billion over the two years before it defaulted on debt in 2021. PwC has been under scrutiny for providing auditing services to the Evergrande Group. As a result, PwC has experienced a significant loss of clients.
PwC is one of China’s largest auditing firms, with around 110 listed Chinese companies as its clients.
However, since March, at least 50 Chinese companies (many of which are state-owned enterprises or financial institutions) have stopped hiring PwC for their audits or have canceled plans to do so.
It was already expected that the Chinese authorities would impose hefty fines and severe punitive measures on this accounting firm. In May, Bloomberg reported that Beijing was preparing to fine PwC approximately $140 million for its involvement in the Evergrande audit issues.
According to data compiled by Bloomberg, among the Big Four accounting firms, PwC is one of the most commonly used auditing firms by Chinese real estate companies listed in Hong Kong, including Country Garden and Sunac China, both of which later experienced public debt defaults.
While the punishment reported on Wednesday may not threaten the survival of PwC China, it will still result in significant losses for them. According to official Chinese data, PwC China had the highest revenue among accounting firms in 2022, reaching $1.1 billion (7.9 billion RMB).
PwC China has assured its clients that employees will continue working during the suspension period and will be able to provide audit opinions on their 2024 annual report after the ban is lifted in March next year.
Previously, another accounting firm, Deloitte, had been penalized by Beijing. Beijing stated that Deloitte had significant auditing deficiencies in its work for China Huarong Asset Management Corporation. Deloitte paid a fine of $31 million and had its business in China suspended for three months.
PwC, Deloitte, KPMG, and EY are collectively known as the Big Four global accounting firms. Why have these “Big Four” accounting firms, which once assisted Chinese companies in listing in the U.S., become targets of the Chinese Communist Party’s crackdown? David Huang, a U.S.-based economist, previously stated in an interview with Epoch Times that there are multiple reasons why the Chinese Communist Party is now targeting these accounting firms that once “helped” Chinese companies.
He mentioned that the assistance provided by the “Big Four” to Chinese companies is a double-edged sword. Previously used to “evade” scrutiny by the U.S. Securities and Exchange Commission and facilitate Chinese companies’ “money-making” listings in the U.S., it has also led to the loss of state-owned assets in China.