PricewaterhouseCoopers Faces Record-Breaking Fine of Over $138 Million in China Amid Evergrande Financial Fraud Probe

Allegations of Financial Fraud during Evergrande Audits lead to Potential Record-Setting Penalty for PwC

Background

PricewaterhouseCoopers (PwC), one of the world’s largest accounting firms, is bracing for a record-breaking penalty from Chinese authorities totaling over $138 million following allegations of financial fraud during audits for real estate giant Evergrande.

Investigation and Announced Penalties

According to reports from Bloomberg, the Ministry of Finance is planning to announce these penalties, including a fine for PwC, as early as this week. China is currently conducting an extensive investigation into irregularities within Evergrande, one of the largest financial scandals in the country’s history.

The potential fine eclipses the 212 million yuan ($30 million) penalty imposed on Deloitte Touche Tohmatsu in 2023, making it a new record. PwC and the Ministry of Finance have refrained from commenting on the matter at this time.

Additional Consequences

There are also suggestions that some of PwC’s offices in mainland China might have their operations suspended. Evergrande, which was once China’s second-largest property developer, was found to have inflated revenue by approximately $86 billion between 2019 and 2020—a major red flag in China’s financial sector.

Resignation as Evergrande’s Auditor

Facing escalating pressures from Chinese authorities, PricewaterhouseCoopers Zhong Tian LLP, the Shanghai-based firm affiliated with PwC’s international network, resigned as Evergrande’s auditor in January 2023 due to disagreements related to the audit findings.

Financial Losses for PwC

As a result of the scandal, PricewaterhouseCoopers has lost several notable clients in China. In May alone, the firm parted ways with China Taiping Insurance Holdings Co., China Merchants Bank, and People’s Insurance Company (Group) of China Ltd. PwC had been frequently engaged with Chinese real estate firms listed on the Hong Kong Stock Exchange, including auditing industry leaders such as Country Garden Holdings Co. and Sunac China Holdings Ltd. Both Country Garden and Sunac also defaulted on their debts.

Market Leading Revenue

The mainland branch of PwC, with over 1,600 certified accountants, generated a revenue of 7.9 billion yuan ($1.1 billion) in 2022. This represents only a fraction of PwC’s global earnings, which totaled $50.3 billion that same year.

Initiative to Combat Financial Risks

The increased financial penalties come as part of President Xi Jinping’s initiative to combat financial risks and criminal activity in an effort to stabilize China’s economy. Chinese authorities have imposed hefty fines on several prominent companies to deter similar instances of fraud in the future.

Stay Tuned for Developments

Stay tuned for further developments on the ongoing investigation into PricewaterhouseCoopers and Evergrande, as new announcements are anticipated in the coming days.