Financial fraud probe into PwC nears its conclusion

Staff reporter and agencies

China is expected to soon announce its penalty on PricewaterhouseCoopers over its auditing work for distressed developer China Evergrande, according to people familiar with the matter, in one of the nation's biggest alleged financial fraud cases.

The regulatory probe into PwC is being fast-tracked, the people said, with most terms having been agreed to by the global auditor and related parties.

The major dispute left is whether the allegations against the auditor - that it colluded with its client China Evergrande in financial fraud - will be included in the final statement, according to sources. PwC audited Evergrande for almost 14 years until early 2023.

PwC rejected the allegation, which it regards as a very serious accusation against the global auditing firm, the people said.

The amount of the fine has more or less been decided, the sources added.

In May, the Ministry of Finance was reportedly planning to unveil a record fine of up to 1 billion yuan (HK$1.09 billion) in a week's time, but no official announcements were made after the report.

PwC has been under the spotlight after China launched one of the biggest investigations of financial fraud in history involving 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.

Hui Ka-yan, chairman and founder of China Evergrande, was fined 47 million yuan and banned for life from participating in the securities market, after he was caught carrying out fraudulent behavior.

After the penalty on the developer and Hui was announced, PwC has been experiencing an exodus of major Chinese clients. More than 40 mainland firms, many of which are state-owned enterprises or financial institutions, have either dropped PwC as their auditor or canceled plans to hire it in recent months.

Among them are some of PwC's largest clients, including Bank of China, China Life Insurance, and PetroChina, which last year paid accounting fees of nearly 200 million yuan, 64 million yuan, and 46 million yuan respectively, filings showed.

Meanwhile, rivals Ernst & Young and KPMG have snapped up at least 24 of PwC's clients in China.

Hit by the exodus of major clients, PwC has reportedly asked its China-based partners to take a pay cut of up to 50 percent.