China poised to impose record 1b yuan PwC fine

China is poised to impose a record fine of as much as 1 billion yuan (HK$1.08 billion) on PricewaterhouseCoopers and suspend some of the global auditor's local operations over its role in one of the nation's biggest alleged financial fraud cases, according to people familiar with the matter.

The Ministry of Finance may announce the penalties as soon as this week over PwC's auditing work for China Evergrande (3333), said the people.

PwC faces a fine of at least 1 billion yuan, the people said. That would exceed the previous record fine for an accounting firm, the 212 million yuan handed out to Deloitte Touche Tohmatsu in 2023.

Part of the penalties could also include a halt of operations at some of PwC's mainland offices, the people said.

PwC has been under the spotlight after China launched one of the biggest investigations of financial fraud in history involving developer Evergrande. Authorities earlier this year levied a 4.18 billion yuan fine against the once high-flying real estate firm and said the company's main unit, Hengda, overstated its revenue by 564 billion yuan in the two years through 2020.

The penalty will damage PwC's reputation and "adversely affect the public confidence in accounting," said Gao Pingyang, a professor in accounting and law from Hong Kong University Business School. "I wouldn't be surprised if the share of the auditing market by those global franchise in China would shrink."

In May alone, PwC already lost a handful of Chinese clients, adding to a list of more than a dozen firms it has stopped auditing in the country in the last two years. China Taiping Insurance Holdings (0966), China Merchants Bank (3968) and People's Insurance Company (Group) of China (1339) were among them.

Meanwhile, PwC is under a separate investigation initiated by a Hong Kong financial regulator in April, after a whistle-blower letter was circulated that raised concerns over audit deficiencies in matters including China Evergrande.

Evergrande was ordered to be liquidated by a Hong Kong court earlier this year for not able to deliver a debt restructuring plan more than two years after it defaulted on offshore note payments.