China fines PwC $62m for auditing mistakes at Evergrande

The Chinese division of PwC has been fined a record $62 million and banned for six months from auditing clients after it made “major mistakes” when signing off the accounts of Evergrande, the collapsed property developer.
China’s finance ministry said that PwC had failed to identify that Evergrande had overstated its sales by almost $80 billion between 2018 and 2020, before its high-profile collapse a year later. It said that “severe flaws” in auditing work meant that “many false conclusions” had been made about Evergrande and its prospects.
The penalty is the harshest to have been imposed on an audit firm by Beijing, surpassing the $31 million fine and three-month business ban handed to Deloitte last year for its work as the auditor of China Huarong Asset Management.
PwC China had expected a fine and ban and had been cutting staff in anticipation. Hemione Hudson, one of the most senior partners in PwC’s British business, was sent out to China this week to lead a recovery mission.
Mohamed Kande, the global chairman of PwC, said that the China division’s audit work of Hengda Real Estate, the name of Evergrande’s mainland unit, had fallen “well below our high expectations and was completely unacceptable. It is not representative of what we stand for as a network and there is no room for this at PwC. That is why, following a thorough investigation, we ensured that actions were taken to hold those responsible to account and a comprehensive remediation programme will build a stronger PwC China firm for the future.”
PwC confirmed that Daniel Li, who started as PwC’s senior partner in China as recently in July, had stepped down. He had been head of audit for five years before his recent promotion. He will remain in the business as chief accountant.
The Big Four firm has dismissed six partners, while five other staff who worked closely on the Evergrande account have left the firm. Financial penalties have been issued to present and former staff “who were responsible for the business”.
China is PwC’s third largest network, employing about 18,000 people, behind only the United States and Britain. It had been the auditor for Evergrande for 14 years between 2009 and 2023.
Evergrande was once China’s biggest property developer and took on debts of more than $300 billion, defaulting on repayments in 2021. Its problems spread panic through financial markets and preceded a wave of defaults at other struggling Chinese property companies.
This year Chinese regulators said that Evergrande had committed fraud, overstating its sales by tens of billions of dollars between 2018 and 2020. The group has been ordered to be liquidated.