China bans PwC for 6 months, fines $62 mn for ‘audit lapses’

Beijing : In a significant development, China has banned PwC China -- part of the Big Four -- for six months and fined it nearly $62 million for alleged auditing lapses, the media reported on Friday.

The action came after an announcement by China’s securities regulator that PwC China approved the accounts of beleaguered property company Evergrande, even as the real estate developer “inflated mainland revenues by nearly $80 billion in the two years before its default in 2021,” the Financial Times reported.

According to China’s finance ministry, PwC China and its Guangzhou branch were aware of “major mistakes” in the audit of Evergrande from 2018 to 2020 but failed to point them out.

The report mentioned that the ministry has ordered the Guangzhou branch of PwC China to shut down.

PwC said in a statement that “we are disappointed by PwC Zhong Tian’s (or PwC ZT) audit work of Hengda, which fell unacceptably below the standards we expect of member firms of the PwC network.”

The global audit firm also terminated six partners and “exited” five staff directly involved in the audit.

“The work performed by PwC Zhong Tian’s Hengda audit team fell 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,” Mohamed Kande, PwC global chair, was quoted as saying.

According to reports, the penalty surpasses the $31 million fine and three-month partial business ban imposed on Deloitte last year for “serious audit deficiencies” related to its work with China Huarong Asset Management.

The finance ministry said in a statement that it “imposed administrative penalties on PricewaterhouseCoopers, including a warning, suspension of its business for six months and the revocation of its Guangzhou branch”.