Accountancy giant PwC was banned in China Friday for six months and slapped with a fine of $62.2 million over problems with its audit of beleaguered property company Evergrande.
The moves by Chinese regulators mark the latest development in a crackdown on PwC for its work with Evergrande, which has become emblematic of a protracted debt crisis in the country’s real estate sector.
In the Friday announcements, regulators hammered PwC for its failure to identify and bring attention to severe financial problems within Evergrande — once China’s biggest real estate firm — ahead of its default in 2021.
“After investigation, it was found that PricewaterhouseCoopers and its Guangzhou branch knew that there were major misstatements in Evergrande Real Estate’s financial statements during the audit,” China’s Ministry of Finance said in a statement.
The Ministry added it had imposed administrative penalties on PwC that included the “suspension of its business for six months and the revocation of its Guangzhou branch”.
In a separate statement Friday, China’s top securities regulator said it had penalised PwC, while another fine in coordination with the finance ministry brought the total to 441 million yuan ($62.2 million).
The statement said the penalties were because the firm had “failed to perform due diligence” in its work involving Evergrande.
PwC “failed to maintain due professional scepticism, failed to make correct professional judgments, and failed to discover Evergrande Real Estate’s financial fraud, which was of large scale and high proportion”, it added.
In response, PwC said its China auditors had fallen “unacceptably below standards” during their work with Evergrande.
“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 Global Chair Mohamed Kande said in a statement on the firm’s website.
“China remains an important part of the PwC network and I remain confident in the China firm’s partners and staff as we work together to rebuild trust with stakeholders,” Kande added.
Last month, Evergrande liquidators filed a lawsuit against PwC in Hong Kong, part of an effort to recover investments after a court ordered the property firm’s liquidation, according to a report by Bloomberg.
The lawsuit targeted PwC’s “negligence” and “misrepresentation” in connection to reports on Evergrande’s financial statement for 2017 and the first half of 2018, according to the report.