China imposes 189.8 billion won fine on PwC for 'Hengda accounting audit failure'

Historic Largest Fine Leads to Series of Contract Cancellations

The Chinese government is reportedly planning to impose a fine of 1 billion yuan (approximately 198.9 billion KRW) on PricewaterhouseCoopers (PwC) for faulty accounting audits related to the real estate developer Evergrande Group.

On the 30th (local time), Bloomberg News cited sources saying that the Chinese government plans to announce this measure as early as this week. This is the largest fine ever, exceeding 4.5 times the 212 million yuan penalty imposed on Deloitte in 2023. Bloomberg also reported that the Chinese government is likely to suspend the operations of some of PwC's offices within China.

[Image source=Reuters Yonhap News]

Earlier this year, Chinese authorities investigated Evergrande Group's $78 billion fraud case and imposed a fine of 4.18 billion yuan. The allegation was that Evergrande's main business units overstated revenue by 564.9 billion yuan over two years until 2020. PwC had been responsible for auditing Evergrande's accounts for over 10 years, including the period of accounting fraud.

Previously, there were reports within China that large state-owned enterprises have been canceling their audit contracts with PwC one after another. According to China Daily Economic News on the 30th, China National Petroleum Corporation (CNPC, PetroChina), a state-owned oil extraction company, announced that it would cancel its contract with PwC ahead of the regular shareholders' meeting review. The People's Insurance Company of China (PICC) also announced the day before that it would change its accounting firm from PwC to Ernst & Young (EY). Additionally, Qingdao Brewery, Guangdong Power, Shanghai Silicon Industry, China Merchants Bank, China Railway, and Dongfeng Beverage joined in cutting ties with PwC.

According to Wind data, PwC audited a total of 107 China A-share listed companies in 2023, with total audit fees amounting to $869 million. PwC's mainland China branch recorded the highest revenue among accounting firms in China in 2022, with sales of 7.9 billion yuan.

PwC is also under investigation in Hong Kong regarding Evergrande's 2020 financial statements, and last year in the UK, it was fined ?5.6 million (9.8 billion KRW) for audit failures related to Babcock International Group.