As per the report on July 18, 2024, the impact brought by Evergrande Real Estate’s audit has led to a significant loss for PricewaterhouseCoopers (PwC) China. This year, PwC’s accounting revenue from mainland listed company clients has decreased by approximately two-thirds.
According to a report by the Financial Times on July 17, PwC Zhongtian (also known as PwC China) has suffered a loss of at least 561 million RMB (77 million USD) in audit revenue from Chinese companies listed on mainland exchanges over the past six months. Last year, this audit revenue amounted to 869 million RMB.
PwC had conducted audits for China Evergrande Group, which drew the attention of the Chinese authorities. Earlier this year, the Chinese government imposed a fine of 4.18 billion RMB on Evergrande. PwC’s Shanghai-registered affiliate, PwC Zhongtian, was the auditing firm for Evergrande during this period. The cooperation between the two parties was terminated in January 2023.
According to a Bloomberg report in May, PwC could face fines of up to 1 billion RMB due to audit errors in the Evergrande incident.
Following the news of potential fines for PwC, a report by China’s 21st Century Business Herald on May 31 disclosed that 21 listed companies terminated contracts with PwC, including China Petroleum, PICC, China Merchants Bank, as well as China Railway, China Merchants Port, and other listed companies.
Data from Wind Info shows that in 2023, PwC had 107 A-share annual audit clients, with audit fee income exceeding 800 million RMB. By the end of May, at least 19 A-share and 2 Hong Kong-listed companies had terminated cooperation with PwC. Among the 17 companies that disclosed amounts, the corresponding audit fees exceeded 200 million RMB.
The Financial Times reported on July 17 that the significant client losses indicate a reshaping of China’s audit landscape even under the threat of penalties. The client exodus is severe enough to force companies to downsize and trigger cost reductions in Chinese operations.
PwC China declined to comment on the client loss issue, but internal communications seen by the Financial Times show that company executives are trying to mitigate the impact. In a recent email to partners, the company advised to “stay calm” and “prepare for the upcoming upheaval.”
On July 16, Reuters exclusively reported that PwC is considering reducing its financial services audit staff in China by up to half, as regulatory investigations and substantial client defections dim business prospects.
Sources told Reuters that PwC currently employs at least 2,000 staff in its audit department in China, mainly based in Beijing and Shanghai. In addition to cutting audit personnel, a significant reduction in non-audit business staff, by around 20%, is also expected.