PwC China faces massive business restriction by Chinese authorities starting in September. This sanction, which could include a six-month business suspension and possibly a hefty fine, would be the toughest action ever taken against one of the Big Four auditing firms in China. The background of this penalty is PwC's controversial audit of the now-collapsed property developer Evergrande.
The Chinese securities regulator announced in March that Evergrande had inflated its mainland revenues by nearly $80 billion in the two years prior to its 2021 default – despite a positive audit report from PwC China. The impending penalty is part of an intensified scrutiny of auditors' roles in financial scandals, particularly in the crisis-hit real estate sector, which once accounted for about a quarter of China's GDP.
While the penalty does not immediately threaten the existence of PwC Zhong Tian, better known as PwC China, it will nevertheless have significant impacts. In 2022, with revenue of 7.9 billion RMB (1.1 billion USD), PwC China was the largest auditing firm in the country. The sanctions would prevent PwC China from signing financial reports, accompanying IPOs, and performing other regulated activities.
The impending nationwide lockdown would overshadow Deloitte's three-month suspension last year due to serious auditing errors in work for China Huarong Asset Management. Deloitte had to pay a fine of $31 million at that time.
Many publicly traded companies on the mainland are not allowed to work with a government-sanctioned auditor for three years. PwC China has already lost at least two-thirds of its revenue from publicly traded mainland clients this year, as they have switched to other firms – an indication of the far-reaching consequences of the Evergrande audit.
Some State-Owned Clients of PwC, Including the Bank of China, Try to Release Their Half-Year Results Early to Minimize Damage. The Bank of China Has Moved Up Its Release Date by One Day to August 29, As the Announcement of Sanctions Against PwC Is Expected by the End of August.
PwC China, meanwhile, is striving to reassure its largest internationally listed clients, including Alibaba and Tencent, that the 2024 financial statements can be completed. Additionally, the company is trying to secure future service contracts for 2025 in order to retain as much business as possible.
In light of the impending sanctions and the loss of customers, PwC China has already begun accelerated layoffs in its offices to reduce costs. In a statement, PwC China said that it "would not be appropriate to comment on an ongoing regulatory matter.
