Hong Kong’s accounting regulator has imposed a HK$300 million fine and six-month practice limitation on PwC over the China Evergrande audits.
The Accounting and Financial Reporting Council has banned PwC from accepting, performing, or issuing reports for new clients for half year, for misconduct in connection with PwC’s audits of the 2019-2020 financial statements of Evergrande, Evergrande Property Services (6666), and China Evergrande New Energy Vehicle (0708).
It also fined HK$5 million each on Cheung Siu-cheong and Chow Sai-keung, two of its former partners and registered responsible persons, according to a statement.
The AFRC also directed PwC to provide periodic updates and reports to the regulator regarding its remedial actions for a year and to arrange additional training.
In a statement, PwC said the practice limitation will have no impact on its existing clients and that it has taken decisive accountability and remediation measures and also implemented a thorough program over the last two years that has strengthened culture, quality, and governance.
The company acknowledge that the work on the Evergrande audits fell well below the expectations of itself and its stakeholders and resolving the regulatory matters is an important step for the firm.
Following investigations, the AFRC found that there were numerous serious audit deficiencies by PwC in the audits, including:
These deficiencies ultimately enabled Evergrande to prematurely recognise revenue, inflate reported profits, as well as materially misstate its properties under development and completed properties held for sale, it said.
Strong ethics and high-quality audits are fundamental to the integrity of financial reporting and market confidence, said David Sun Tak-kei, chairman of the AFRC.
“While the issues identified in this case are serious, the AFRC remains confident in the credibility and capability of Hong Kong’s audit profession as a whole,” Sun said.
