PwC Faces Six-Month Suspension in China

By Xie Yu and Julie Zhu
HONG KONG (Reuters)
Chinese regulators are set to impose a six-month suspension on a significant portion of PricewaterhouseCoopers’ (PwC) auditing unit in mainland China, primarily due to its work for troubled property developer Evergrande. According to five sources familiar with the situation, this action targets PwC Zhong Tian LLP, the main onshore arm of PwC in China, particularly in its securities-related business.

This ban will affect PwC’s ability to serve clients, including listed companies, firms planning IPOs, and investment funds in mainland China. A fine of at least 400 million yuan ($56 million) is anticipated alongside the ban, marking the severest penalty ever imposed on a Big Four accounting firm in China.

Similar punitive measures were recently applied to Deloitte’s Beijing branch, which was fined 211.9 million yuan and faced a three-month suspension due to severe audit deficiencies.

The penalties for PwC are predominantly managed by China’s Ministry of Finance (MOF), the main regulator for accounting firms in the country, and have yet to be finalized. A PwC spokesperson declined to comment, citing ongoing regulatory matters, while the MOF did not immediately respond to inquiries.

The spotlight has been on PwC due to its long-standing relationship with Evergrande, where it served as auditor for nearly 14 years until early 2023. The developer has faced allegations of a massive $78 billion fraud since March.

Reports indicate that the penalties against PwC are expected to be announced in the coming weeks. Initial coverage in the Financial Times indicated that the firm might face a six-month business ban as soon as September, while Bloomberg reported a potential record fine of at least 1 billion yuan ($140 million).

The impending penalties have already resulted in an exodus of clients for PwC, along with cost-cutting measures and layoffs, raising doubts about the firm’s future in China’s economy.

If imposed, the suspension would prevent PwC from signing off on crucial documents for clients in mainland China—including financial results and IPO applications—and from engaging in other securities-related services. Additionally, PwC Zhong Tian could be restricted from taking on new state-owned or domestically-listed clients in the next three years, in line with Chinese regulations.

Over the last few months, at least 50 Chinese companies, mainly state-owned enterprises and financial institutions, have severed ties with PwC or abandoned plans to hire the firm. Notably, the Bank of China express its intention to switch to EY for its 2024 annual audit, indicating a decline in confidence in PwC’s services.

In 2022, PwC Zhong Tian achieved revenues of 7.92 billion yuan, making it the highest-earning auditor in China, followed closely by EY, Deloitte, and KPMG.