PwC on brink of six-month China ban
Professional services giant PwC could be stung with a six-month ban on working in China, according to sources close to the firm. Following the Evergrande accounting scandal, reports suggest Chinese authorities are poised to crack down on the audit and advisory firm, having previously meted out similar punishments to its rival Deloitte.
PwC has been in hot water with China’s market regulators for some time now, due to its connection with the collapse of Evergrande. In a pattern which may sound familiar to followers of the UK audit market, Evergrande was previously one of China’s largest developers – but had overstated revenue at its main Hengda unit by ¥564 billion in the two years through 2020.
Having served as Evergrande’s auditor for almost 14 years, until it resigned in early 2023, PwC was judged to have failed in its duties by China's Ministry of Finance. Having ruled that PwC was at fault for not uncovering the black hole in the accounts sooner, the regulator has since been mulling over what punishment to mete out on the firm.
Earlier in the year, it was reported that PwC could be facing a fine of at least ¥1 billion, but it has since emerged that even graver measures could be on the table. According to The Financial Times, PwC China has informed its clients it expects a six-month business ban by Chinese authorities, and that it could be put into place as early as September.
PwC sources have declined to officially comment, as it is an ongoing regulatory matter. However, reports add that the ban would prevent it from signing off on financial results and initial public offerings and from conducting other regulated activities, the report stated, citing multiple clients.
Should the ban come to pass, it would be a further body-blow to PwC’s already beleaguered presence in China. Over the past year, around 20 mainland-listed companies have switched from PwC to rival firms, including heavyweight accounts state-owned China Life Insurance and China Railway Group. The downward spiral has seen PwC preparing for lean times, and it has already laid off hundreds of staff in offices including Guangzhou, Shenyang, and Shanghai. At the same time, China-based partners have been asked to take a pay cut of up to 50%.
It is not the first time that the Ministry of Finance has moved to make an example of a Big Four firm, either. Deloitte was banned from operating in Beijing for three months, and was stung with a ¥211.9 million fee for reportedly failing to adequately assess the asset quality of China Huarong Asset Management.
Elsewhere, the Ministry of Finance has also reportedly asked state-owned enterprises to stop relying on the Big Four for their audit needs. The Ministry warned against the use of Deloitte, PwC, EY and KPMG amid concerns relating to data security.
