HONG KONG (Reuters) – Chinese regulators on Friday hit PwC’s auditing unit in mainland China with a six-month business suspension and a record fine of 441 million yuan ($62 million) over the firm’s audit of troubled property developer China Evergrande Group.
Chinese authorities have been examining PwC’s role in the accounting of Evergrande’s Hengda Real Estate since the securities regulator accused the developer in March of a $78-billion fraud over a period of two years through 2020.
Below are comments from experts:
NIE WEN, AN ECONOMIST AT SHANGHAI HWABAO TRUST, SHANGHAI:
“The penalties imposed by the Ministry of Finance and the China Securities Regulatory Commission on PwC, including the confiscation of revenue and fines together over 440 million yuan, are within expectations.
“The main purpose of these penalties is to serve as a warning to both domestic and international accounting firms operating in China, in the hope of promoting more standardized audit practices.
“As more and more Chinese companies go global, the demand for international accounting firms in China remains relatively large.
“At the same time, Chinese authorities may also hope that domestic accounting firms can grow and develop more quickly. However, it seems that domestic firms still have a significant gap compared to their international peers, particularly in terms of business compliance and other aspects.”
HAN HONGLING, PROFESSOR, ZHEJIANG UNIVERSITY, HANGZHOU:
“This is a landmark penalty that will significantly impact China’s auditing market.
“The six-month business suspension will accelerate the client exodus from PwC. Clients will flock to EY and KPMG, given Deloitte is still recovering from the penalty it received last year.
“This makes it more urgent for the Chinese government to promote joint-auditing models in which local firms could work together with the Big Four, for both audit quality control and national security concerns.
GARY NG, ASIA-PACIFIC SENIOR ECONOMIST AT NATIXIS, HONG KONG:
“The cost is enormous in reputation, affecting the ability to get new business in China beyond the fine. In the short run, PwC’s market share will decline in China, benefiting the other big three auditing firms.
“But the question is whether China wants to build its own auditing giant in the long run, especially with issues like data security nowadays.”
(Reporting by Ziyi Tang in Beijing and Xie Yu in Hong Kong; Editing by Sumeet Chatterjee and Mark Potter)
